December Personal Income and Outlays

The Bureau of Economic Analysis’ report on income and outlays improved in the final month of 2012.  The magnitudes of the two improvements were not similar but each figure was better than the month before.  Personal income soared 2.6 percent for the month after growing one percent in November.  Spending only managed a 0.2 percent increase which was half the rate of the prior period.

Overall income surged by $352.4 billion on an annualized basis but had a few special circumstances driving the large improvement.  Social Security paid a lump-sum benefit totaling an annualized $7 billion as the benefits of recent recipients were recalculated.  December was also the last month before anticipated tax increases, so there were accelerated bonus and dividend payments for the month adding to the total.  The BEA estimates private wages and salaries were boosted by an annualized $30 billion in December after a $15 billion annualized increase in November because of the expected higher taxes.

Personal consumption expenditures only increased by an annualized $22.6 billion.  Consumer purchases were higher across the spectrum of categories.  More money was shelled out for nondurable goods, durable goods, and services.  Since the pace of spending was not commensurate with the growth of income, the savings rate went up to 6.5 percent compared to November’s 4.1 percent rate.

Finally, the central bank’s favorite measure of inflation is included in this release.  The “core” price index which subtracts food and energy increased less than 0.1 percent for the month.  Year-over-year the “core” measure has ticked up 1.4 percent, remaining well below the Federal Reserve’s discomfort zone of greater than two percent.

Atlas cannot wait to see the next release of this indicator.  The December anomalies will make an income improvement in January difficult.  Also, the reintroduction of the full social security withholding that started at the beginning of 2013 is likely to negatively impact either the savings rate or consumption.  This is an important indicator because it heavily influences gross domestic product.  It is not being set up for success by the end of the year one-offs or the first of the year changes.  (by  C. Cox)