Personal income rose a whopping 10 percent in January, the Department of Commerce reported Friday, but the increase was almost entirely due to the $ 600 state aid check and unemployment insurance payments.
Spending soared a healthy 2.4 percent last month, mainly due to purchases of goods, while purchases of services lagged as the pandemic continued to weigh on the leisure and hospitality industries.
It was the largest increase in personal income since April, when the number rose by nearly $ 3 trillion in government transfer payments. Most of this came in the form of $ 1,200 checks that millions of households had received from the federal government.
January data was the latest sign of economic recovery, a trend that has also been seen in recent reports on retail sales and durable goods orders. Some economists are now predicting not only a growth phase after the pandemic, but maybe even a boom after Covid.
Yields on government bonds, the foundation of mortgage rates and corporate bonds, rose sharply this month as investors anticipate rapid growth in growth this year. For example, yields on 10-year Treasury notes, which were below 1 percent for much of 2020, rose over 1.5 percent on Thursday before declining slightly on Friday.
This sudden jump also reflects concerns that growth would make inflation a problem, prompting the Federal Reserve to curtail its measures to strengthen the economy. A change in the Fed’s stance should be considered bad news for stocks, and Wall Street trading has been tumultuous all week as investors react to the sudden moves in bond yields.
January’s revenue and expenditure report also underscored the importance of government aid to the economy, said Diane Swonk, chief economist at accounting firm Grant Thornton.
“Technically, you could say we’re recovering,” she said. “But the income and spending patterns show the fragility of recovery without help in bridging these toxic waters.”
Still, the combination of government aid and reduced spending resulted in a sharp surge in savings last year due to the pandemic, said Jay Bryson, Wells Fargo’s chief economist, which could spur Americans to spend more in the future. He estimates that US households had an additional $ 1.5 trillion in savings before the last round of stimulus payments.
“People got all this money and they had no place to spend because the economy was closed,” he said. “So what did you do? You literally put it on the bench. “
That cash supply will increase if Congress passes another round of aid, as it now likely appears. But when the pandemic subsides, Americans will likely start spending again – turning the accumulated savings into fuel for the economy.
“We just believe there will be this huge pent-up demand for services that will be funded by these excess savings,” said Bryson.
But not all state aid will be saved. Retail sales rose in January, a sign that some Americans were spending the money. Some of this expenditure could have been made for the essentials, as unemployed workers refilled the pantries after weeks with little help. But part of that could also reflect the gradual reopening of the American economy, even as the pandemic rages on.
“We learned to deal with this thing over the last year,” said Bryson.
Gregory Daco, chief US economist at Oxford Economics, said the coming months could be bumpy as consumer spending gradually warms up in the spring and summer as the combination of a new round of stimuli, reduced infections and vaccine distribution keep people and their money this brings larger circulation.
“We know what is holding back consumer spending,” he said – namely the health crisis and, for some families, the funds. “And the January report shows that if these two restraint factors are mitigated, consumers will spend money and then the recovery will be strong.”
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