January 2018 Personal Income and Outlays

Income and spending improved to start 2018 according to Bureau of Economic Analysis.  Pay increased $64.7 billion (an increase of 0.4 percent) in the period.  After-tax pay rose even faster, surging 0.9 percent or $134.8 billion.  In addition to taking home more money, Americans spent more as well; personal consumption increased $32.4 billion, a rise of 0.2 percent. 

Three of the four major income categories improved in January.  Wages and salaries (the largest source of income in America) increased 0.5 percent, accelerating from 0.4 percent in December.  Proprietor’s income rose 0.2 percent and made up for all of the prior period’s slowdown.  Rental income rose as well; landlords took in an additional 0.5 percent.  Finally, personal income on assets (interest payments and dividends) fell 0.4 percent. 

Consumer outlays were mixed and the savings rate improved.  Spending on nondurable goods rose nearly 1 percent while consumption of durable goods fell 1.5 percent.  Outlays for services rose 0.3 percent.  Since spending rose slower than after-tax pay, Americans’ saving rate was boosted to 3.2 percent from a meager 2.5 percent in December.

Inflation data were steady.  The Personal Consumption Expenditure (PCE) Price Index rose 0.4 percent.  However, a significant portion of this was fuel.  Leaving out both food and energy (since they tend to be volatile), the core-PCE Price Index rose 0.3 percent for the period and 1.5 percent in the past year.  This core-price proxy is the Federal Reserve’s favorite; its trend remains below the central bank’s explicit target of 2.0 percent which should help justify the moderate pace of overnight interest rate hikes we are likely to see during the next several quarters. 

America’s output continues moving forward.  Our economy’s trend is higher, but tame inflation persists.  Consumers remain the primary driver of output.  There are no signs of recession from the vantage point of this Bureau of Economic Analysis release.