U.S. personal income falls sequentially in January

The BEA released a report today showing the U.S. personal income dropped in January; however, the December print was upwardly revised. Sequentially, personal income fell 0.1 percent, while the December print was revised to a rise of 1 percent. In spite of the income gain, personal spending dropped 0.5 percent in nominal terms and 0.6 percent after adjusting for inflation. This is the worst performance since September 2009.

Special factors stimulated the December income growth including a one-time dividend payment by VMware Incorporate and increased farm subsidy associated with the Department of Agriculture’s Market Facilitation Program.

Spending dropped on all components, led by durable goods. Non-durables dropped 1.2 percent, while services fell 0.2 percent. With income up and spending dropping, the personal saving rate rose to 7.6 percent from 6.1 percent in November. Inflation in the PCE deflator slowed to 1.7 percent in December. Core PCE inflation continued to be stable at 1.9 percent in the month.

December appears to be an all-around terrible month for U.S. economic data. Some of the falls in spending in December likely shows undue strength in November, which might show a pulling forward of typical seasonal spending, distorting the read slightly, noted TD Economics in a research report.

“Fundamentals for consumer spending are solid. Job growth has maintained its strong pace, and wage growth is accelerating. Consumers have an ample cushion to spend. This should lead consumer spending to improve to above 2% in the second quarter”, added TD Economics.

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