The most recent data release from the Bureau of Economic Analysis (BEA) showed that personal income rose slightly (by 0.2%) in December, to a seasonally adjusted annual rate (SAAR) of $18,922 billion. The gains in personal income were mostly from increases in wages and salaries and personal interest income, which were partially offset by a drop-off of $36.2 billion in farm proprietors’ income. Real disposable income (income remaining after adjusting for taxes and inflation) went down by 0.1% after a 0.3% gain in November.
Personal consumption expenditures (PCE), which make up more than two-thirds of the economy, increased 0.3% in December after a 0.4% gain in November. Adjusting for inflation, real personal spending edged up by 0.1% in December, and was 3.3% higher year-over-year.
Also in December, personal savings increased to $1,28 billion (SAAR), accounting for 7.6% of disposable income. The savings rate rose with the onset of the Great Recession as households repaired their balance sheets. However, higher savings rates, which imply a slowdown in spending, could hold back economic growth.