Personal income growth nosedives in 2013 as consumers buckle down
By Jay Keller
Consumers did continue to spend in the first month of 2013 despite having less personal income than 20 years before but many retailers won’t benefit from the spending habits as most of the money spent went to services instead of goods.
The Commerce Dept. said on Friday that personal income growth did a nosedive in January, dropping nearly four percent to register the largest one-month drop in 20 years.
Consumer spending showed modest gains and the less-than-one-percent increase over December was on par with what economists expected.
Gains in household purchases, which account for 70 percent of economic activity, can be tied to more spending on services like utilities as higher heating bills came with a cold streak and winter storms across the country.
The drop in personal income growth was offset by two special factors over the past two months and most of the ground gained in December, according to officials, reflected a rush by companies to pay out incentives and dividends before the payroll-tax increase went into effect at the beginning of the year.
Spending on goods such as cars and clothing also fell while people put less money in the bank in an effort to make up for a hit in take-home pay.
In January, employee contributions for government social insurance also increased, making the numbers misleading. Excluding these special factors, declines in personal income would have remained unchanged.
Economists are not surprised that consumer spending would remain flat in the first quarter of 2013 and many expect to see it recover by the middle of the year.
Rising gasoline prices and the need to rebuild nest eggs will continue to test the patience of consumers and if families are feeling not wealthier, they will likely not loosen purse strings.
Financial analysts say consumer spending will remain strong as long as more jobs become available, people buy houses and new cars.
The rate at which households are saving money also fell to the lowest level since Nov. 2007 and will continue to do so as long as income drops and spending rises.
If jobs gains pick up further and Wall St. cooperates, families may feel more optimistic about finances and lead to a rising tide of consumer sentiment that could lift the boats of many retailers.