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Incomes up 3.5%, Spending Up 11.9%

Most of the increase in incomes was due to the payroll tax cut that began in January, but this increase didn’t translate into faster growth in spending.

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In January, real personal income excluding government transfers increased 3.5% compared to January 2010. This is the fastest month-over-month rate of growth in incomes since December 2006. Much of the faster rate of growth was due to the start of payroll tax cut in the month of January. The good news is that incomes continue to rise and individuals are keeping more of their income instead of having it taxed by the government, which should lead to more consumer spending and greater industrial production. The bad news is that this makes the economy even more leveraged and sends the government (and all of us) further into debt.

 

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While income levels are still below their pre-recession high, real consumer durable goods spending is at an all-time high. In January, spending on durable goods grew by 11.9% compared to January 2010. This extends the streak of double-digit, month-over-month gains to five. This is very good news for the metalworking industry since it should lead to higher levels of production. However, the accelerating growth in spending is starting to slow. And, it appears that this may be at least causing a temporary slowdown in the growth of industrial production.