Incomes surged in January, a sign of momentum before Coronavirus shook the global economy.
Personal income jumped 0.6% from last month, edging out expectations, and was the largest gain in 11 months. Spending grew less, by a seasonally adjusted 0.2%, slightly undercutting forecasts, while the personal savings rate rose 0.4%.
“It’s evident the economy was picking up in the early first quarter, when business confidence was up,” said Christopher Low, chief economist at FHN Financial.
January represented a moment in time when the economy was strengthening. The general mood was positive due to the trade deal between China and the U.S. which was essentially a truce. The personal income report also showed miniscule inflation.
Job growth also accelerated in January, with employers adding 225,000 jobs, and unemployment maintaining record lows.
The sharp increase in income was buttressed by an uptick in transfer payments, specifically social security. Wage growth was strong, too.
“The weather was very accommodative to outside activities such as construction” said Russel Price, senior economist at Ameriprise Financial. “And the month of January is one of the highest months in terms of people getting an increase in their salary or hourly wage. A lot of the time those increases take effect in January.”
The modest growth in spending was driven by motor vehicles, and within services, food and accommodations buoyed the figure.
Personal income and outlays help gauge the overall strength of the consumer sector of the U.S. economy, and accounts for about two-thirds of the economy. The figures, reported for January, reflect a pre-Coronavirus environment where the U.S. economy was in good shape, with the possibility of gaining momentum. At the end of February, the stock market plummeted, exhibiting its worst week since the 2008 financial crisis.
Savings may increase in coming months, as Americans stay home to avoid contact with others.
“People might not be going to restaurants and not going to movie theaters and hotels, and airlines, and not flying and it’s primarily because you have this behavioral change where people don’t want to be in places where other people are,” said Low.
Alternatively, income is at risk of declining as the possibility of quarantines become more imminent. If workers are unable to work remotely, like in the restaurant industry, their ability to earn could be crippled. In China and Hong Kong, some airlines have put their staff on rotating furloughs.
“It’s still useful to know what the baseline was before the virus broke onto the world scene,” said Low.