U.S. personal incomes soared in January as Americans received another round of pandemic-relief checks, helping to re-charge the economy with the strongest spending advance in seven months. The 10% gain in incomes exceeded forecasts and was the largest in nine months, a Commerce Department report showed Friday. Purchases increased 2.4% from the prior month, following a downwardly revised 0.4% decline in December.

Incomes rose more than expected on stimulus checks, extra jobless benefits

The surge in incomes, and expectations of even more stimulus, is seen providing additional fuel for consumers at a time of pent-up demand in the wake of pandemic-related disruptions to the service economy. The January increase reflects the $900 billion pandemic aid package passed in December. The bill provided direct checks to millions of Americans and supplemented jobless benefits with an extra $300 a week payment. While many have saved the government support, the robust increase in spending shows others are spending it.

Lawmakers are moving forward with President Joe Biden’s $1.9 trillion aid plan that has the potential to drive even more income growth. Another round of stimulus checks paired with a child tax credit and an increase in weekly unemployment benefit payments would buoy disposable income in the coming months.

Government transfer payments rose 52% in January from the prior month, reflecting both stimulus checks and the supplemental $300 weekly jobless benefit payments. Disposable incomes, which exclude taxes and are adjusted for inflation, surged 13.3% from January of last year, the sharpest increase since April. Inflation-adjusted personal spending rose 2% after a 0.8% decline. Goods spending jumped 5.1%, while outlays for services advanced 0.5%.

Inflation Figures

Throughout the pandemic inflation, metrics have been very weak, but price pressures are building in pockets of the economy. The index of consumer prices that the Federal Reserve officially uses for its target rose 1.5% in January from a year earlier. That was the largest gain in nearly a year.

The core price index, which excludes more volatile food and energy costs, also increased 1.5%, the biggest gain in four months.

The path of inflation has been the subject of much debate in recent weeks. While so-called base effects will temporarily push inflation metrics higher in the next few months, Fed Chair Jerome Powell has repeatedly emphasized his expectation that any pop in prices will likely prove temporary. Others believe the price pressures will prove a more lasting point to another large stimulus package and pent-up demand.

Posted in: USA