Consumers Give Year a Robust Start; Income and Spending Gains Augur Strong GDP Growth; Lift From Medicare Benefit
Strong income gains and unseasonably warm weather prompted consumers to spend more money than usual in January. Along with data showing manufacturing activity expanded in February, that suggests the economy is on track for robust first-quarter growth.</br></br>Personal income of Americans increased 0.7% in January, the biggest jump since September, according to the Bureau of Economic Analysis. The gain amounted to roughly $75.2 billion. At the same time, consumer spending increased 0.9%, about $76.7 billion, the largest climb in six months.</br></br>The January spending jump follows a soft fourth quarter, which led economists and retailers to worry about an economic slowdown. But the latest data confirm other recent reports that show consumer spending picked up again in January, and that the broad-based gains should ripple throughout the economy.</br></br>Consumer spending is "strengthening sharply in the first quarter" said Dean Maki, chief U.S. economist at Barclays Capital. He estimates that consumer spending in the first quarter will grow at an annualized rate of 4.5% or more, compared with 1.2% in the fourth quarter. Spending is "recovering after the post-hurricane lull" and sluggish auto sales late last year, he said.</br></br>The large gain in personal income was the result mainly of rising wages and salaries, which partly reflects rising employment. The economy added 193,000 new nonfarm jobs in January. But Uncle Sam also contributed to the January income increase as the Medicare prescription-drug plan, an increase in cost-of-living adjustments for recipients of Social Security and some other federal programs boosted transfer payments. Meantime, pay raises for federal civilian and military personnel boosted government wage and salary disbursements. Excluding these special factors, personal income increased 0.4% in January, BEA says.