The most recent data release from the Bureau of Economic Analysis (BEA) showed that personal income increased 0.2% in December. The pace of personal income growth slowed after reaching a 0.8% monthly gain in October. Gains in personal income are largely driven by increases in compensation of employees in December.
Real disposable income, income remaining after adjusted for taxes and inflation, inched up 0.2% in December. However, on a year-over-year basis, real (inflation adjusted) disposable income has experienced almost 2 years of negative growth following March 2021.
Personal consumption expenditures (PCE) dropped 0.2% in December after a 0.1% decrease in November. Real spending, adjusted to remove inflation, decreased 0.3% in December, implying the economy slowed at the end of 2022.
While remaining low historically, the December personal savings rate (3.4%) increased to the highest level since May 2022. As Inflation almost wiped out compensation gains, people are dipping into savings to support spending.
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