UPDATE 1-U.S. personal income posts biggest gain in eight years

Thu Jan 31, 2013 8:44am EST

Related Topics

WASHINGTON Jan 31 (Reuters) - American incomes rose in December by the most in eight years, a positive sign for consumer spending that could help the economy sustain momentum early this year.

Personal income for Americans rose 2.6 percent last month, the Commerce Department said on Thursday. That was the biggest increase since December 2004 and well above analysts' expectations for a 0.8 percent gain.

Personal income rose in November and December, the Commerce Department said, because of special dividends and accelerated bonuses to beat increases in taxes this year.

The big rise in incomes suggests total consumer spending power entered the new year on stronger footing, even though much of the gains may not have been distributed evenly throughout the workforce.

The economy faces the threat of across-the-board spending cuts scheduled for March, as well as the possibility the government might default later this later year and trigger another recession.

After-tax income climbed 2.7 percent in December, the strongest since May 2008, while consumer spending rose 0.2 percent, just below the pace expected by analysts in a Reuters poll.

Excluding the one-time factors that boosted incomes in December, after-tax income rose 0.4 percent.

Data on consumer spending over the full fourth quarter was released on Wednesday and was one of the bright spots in a report that showed the economy unexpectedly contracted during the period.

A weak job market is causing the U.S. Federal Reserve to keep interest rates at rock bottom levels for some time.

The Fed on Wednesday left in place its monthly $85 billion bond-buying stimulus plan, arguing the support was needed to lower unemployment even as it indicated a recent stall in U.S. economic growth was probably temporary.

Thursday's report from the Commerce Department showed cooling inflation, which also will support consumer spending power. Prices rose 1.3 percent in the 12 months through December, down a tenth from the reading in November.

A measure of underlying inflation that strips out food and energy showed prices up 1.4 percent in the period, also down a tenth from November.

FILED UNDER: