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First Cut: Personal income jumps in December on special factors, moderates in January

The report on personal income and spending reflected the catch-up in data releases after the 35-day partial federal government shutdown delayed a number of releases from the Census Bureau and Bureau of Economic Analysis (BEA).

The report released on Friday, March 1 included personal income for December and January, but personal consumption expenditures and the PCE deflator only through December. At this writing, the next report on March 29, 2019 at 8:30 ET will include personal income through February and consumption expenditures only through January.

Personal income rose 1.0% in December due to a number of special factors. The BEA said, “The increase in personal income in December primarily reflected increases in personal dividend income, compensation of employees, and farm proprietors’ income. Personal dividend income increased $83.4 billion, primarily reflecting a one-time special dividend payment by VMware Incorporated. Farm proprietors’ income increased $29.2 billion, which included subsidy payments associated with the Department of Agriculture’s Market Facilitation Program.” There may also have been some early payment of bonuses in December rather than January due to the changes in tax law enacted in December 2017. Personal income was down 0.1% in January from December.


In spite of the special factors affecting income in December and January, the underlying growth in wages and salaries continued. These were up 0.5% in December and up 0.3% in January. Businesses have widely reported hiking wages and nonwage benefits to attract and retain workers, and the labor market remained strong during those months.

Personal consumption expenditures declined 0.5% in December. The 1.9% fall in durable purchases was in part due to flat sales of motor vehicles. The similar 1.9% decline for nondurables could be attributed in part to the rapid fall in energy prices that led to lower costs for gasoline and heating fuels.

The PCE deflator slipped to 1.7% year-over-year in December, below the Fed’s 2% objective. That could be blamed on lower prices for energy. The core PCE deflator was up 1.9% . The underlying trend is still very much in keeping with where Fed policymakers would like to see it, but also is low enough that there is concern about it sustaining price increases near the objective.



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