U.S. Personal Income Dips In January After Jumping In December

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A report released by the Commerce Department on Friday showed U.S. personal income edged slightly lower in the month of January after jumping much more than expected in December.

The report said personal income dipped by 0.1 percent in January after surging up by 1.0 percent in December and rising by an upwardly revised 0.3 percent in November.

Economists had expected income to climb by 0.4 percent in December compared to the 0.2 percent uptick originally reported for the previous month.

The modest pullback in personal income in January, the first drop since November of 2015, primarily reflected decreases in personal dividend income, farm proprietors' income, and personal interest income

The decreases were partially offset by increases in social security benefit payments and other government social benefits.

Disposable personal income, or personal income less personal current taxes, slipped by 0.2 percent in January after spiking by 1.1 percent in December and rising by 0.3 percent in November.

The Commerce Department noted the report combines estimates on income in January and December due to the recent partial government shutdown.

However, the report only included readings on personal spending in December as a result of a delay in the release of data on retail sales.

The report said personal spending fell by 0.5 percent in December after climbing by an upwardly revised 0.6 percent in November. The decrease in spending was the biggest since September of 2009.

Economists had expected personal spending to drop by 0.3 percent compared to the 0.4 percent increase originally reported for the previous month.

Real spending, which is adjusted to remove price changes, slumped by 0.6 percent in December after increasing by 0.5 percent for two consecutive months.

Spending on recreational goods and vehicles showed a notable decrease along with spending on household electricity and gas.

Michael Pearce, Senior U.S. Economist at Capital Economic said the drop in real spending in December "confirms that the economy entered 2019 with much less momentum."

"Consumption growth is on track to slow from 2.8% annualized in the fourth quarter to below 1.5% this quarter, dragging economic growth below trend," he added.

With income jumping and spending falling, personal saving as a percentage of disposable income surged up to 7.6 percent in December from 6.1 percent in November.

A reading on inflation said to be preferred by the Federal Reserve showed the annual rate of core consumer price growth was unchanged at 1.9 percent in December.

"With inflation subdued and economic growth falling below trend, the Fed will remain on hold, and as the economy slows further, we suspect its next move will be to cut rates," Pearce said.

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