WRAPUP 2-Income surge puts U.S. consumers in better shape

Thu Jan 31, 2013 12:33pm EST

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* December personal income jumps most in eight years
    * Much of gains from investments, though wages also up
    * U.S. jobless claims rise 38,000 in latest week

    By Jason Lange
    WASHINGTON, Jan 31 (Reuters) - American income growth surged
in December as companies rushed to make dividend payments before
higher tax rates set in, while buoyant wage growth also gave a
lift to households.
    U.S. personal income rose 2.6 percent last month, the
biggest increase in eight years, the Commerce Department said on
Thursday. 
    While much of the gain was due to special payments aimed at
beating tax increases due to begin this month, wages still grew
at one of the faster rates seen last year. 
    That should lend support to consumer spending and provide
some underlying momentum for the economy despite a surprise
contraction in gross domestic product during the fourth quarter.
    "Even abstracting from the one-off surge in dividend
payments ... the general tone of this report was quite
encouraging," said Millan Mulraine, an economist at TD
Securities in New York.
    The increase in overall personal income was well above
analysts' expectations for a 0.8 percent gain. 
    However, another economic report showed an increase in new
jobless claims last week, and U.S. stocks traded lower as
investors sifted through the mixed data, while prices for U.S.
Treasuries were higher.
    
 
    
    The big rise in incomes put consumers on stronger footing
entering the new year, even if the gains may not have been
distributed evenly throughout the workforce. Extra dividend
payments likely went to the nation's wealthier households who
derive more of their income from investments.
    Still, wages and salary payments grew 0.6 percent last
month, building on a sizable 0.9 percent gain in November.
    The income gains helped push the saving rate, the amount of
disposable income households socked away, to 6.5 percent, the
highest since May 2009. 
    That offers a cushion for consumer spending as the temporary
boost in incomes from investments unwinds and households deal
with higher tax rates that took effect this month.
    Last month, consumer spending rose a modest 0.2 percent,
which was just below the pace expected by analysts.
    The Commerce Department report also showed cooling
inflation, which could help the U.S. Federal Reserve continue
easy-money policies aimed at boosting employment.
    Prices rose 1.3 percent in the 12 months through December,
down a tenth from the reading in November and well below the
Fed's 2 percent target. A core price reading, which strips out
volatile food and energy prices to provide a better sense of
inflation trends, was up a tame 1.4 percent from a year ago.
        
    JOBLESS CLAIMS RISE     
    A separate report from the Labor Department showed initial
claims for state unemployment benefits increased 38,000 last
week to 368,000. 
    However, the increase followed a week where new claims were
at their lowest in five years and still pointed to an economy
where employers are adding jobs, albeit at a lackluster pace.
    The four-week moving average for new claims, which provides
a better sense of underlying trends, gained 250 to 352,000.
    A report on Friday is expected to show employers added
160,000 jobs to their payrolls in January after an increase of
155,000 in December. The unemployment rate is seen holding
steady at 7.8 percent.
    The number of planned layoffs at U.S. firms rose in January
from the prior month, but declined from a year earlier, another
report showed on Thursday. 
    Employers announced 40,430 job cuts this month, up 24.2
percent from 32,556 in December, according to the report from
consultants Challenger, Gray & Christmas, Inc. Layoffs were down
24.4 percent from January 2012.
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