Personal income soared in December, gaining 2.6% in just the one month, the biggest single-month gain in exactly eight years. The dramatic increase, however, was sparked by a succession of mostly one-time events designed to shelter many Americans from the higher taxes that are now in place.
Specifically, the 2.6% jump in income was boosted by accelerated and special dividend payments to shareholders and accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of adjustments in individual income tax rates. Income last month also was boosted by lump-sum social security benefit payments.
Expectations had been much less aggressive, with consensus forecast for income in the month being 0.8%. The December gain also was materially higher than the November increase of 1.0%, which, itself, had been adjusted upward from an initially estimated gain of just 0.6%. The November increase followed on the heels of modest improvement in August (0.1%), in September (0.4%), and in October (0.1%).
The other part of this report pertained to personal consumption expenditures. This metric had been expected to rise by 0.3% in the latest month. Instead, spending gained a more modest 0.2%. That was half the November increase of 0.4%, but it was better than the October showing of a decline of 0.1%. In August (0.3%) and September (0.8%), this metric had increased nicely.
Although this was a solid report on the income side, it is likely that much of this dramatic gain will be reversed in the now-ending month, as those dividend and bonus payments normally paid out in January will presumably not augment income this time around. Thus, there is a decided unusual nature to the aforementioned income report. As to spending, the modest increase closely tracks the overall tone of the current business expansion, which is not memorable by any stretch of the imagination, but likely, notwithstanding yesterday's dour GDP issuance, quite sustainable.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.