US economy is boosted by 10% jump in personal income

Household income in the US rose by 10% in January, the second largest increase in income on record, according to figures released by the Commerce Department last Friday.

The increase came as federal government stimulus payments to households and consumer spending increased 2.4%, and it is hoped that the extra money will prime the US economy for a burst of growth this year, the Wall Street Journal reported.

Background

The administration of former President Donald Trump agreed a $900bn stimulus program last December and has been sending one-time cash payments of $600 to most households. In addition, the government has been adding $300 a week to the standard benefits claimed by the unemployed. Meanwhile, job growth resumed in January after falling in December.

Next steps

• Analytics firm Oxford Economics forecasts that US output will grow 7% this year, its strongest rate of growth in decades, and that US output will fully recover from the downturn by this summer.
• Income was above pre-pandemic levels in December, the savings rate is high and it is expected that wealthier households will contribute significantly to consumer spending this year.
• Previous government data have revealed that retail sales increased in January by the most since early last summer.

Key quote

“People are going to travel more. They’re going to go back to restaurants and bars, they’ll go back to the gym – all the things they basically were not able to do before the pandemic. This is where you will really see a burst in spending” – Lydia Boussour, senior economist at Oxford Economics.

Sourced from The Wall Street Journal