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Personal Income, Spending Jump in February

Personal income rose a solid $143.2 billion or 1.1% in February, dwarfing expectations and spending jumped $77.2 billion or 0.7%, the ""Bureau of Economic Analysis,"":http://bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf reported Friday. The data suggest the personal spending component of Gross Domestic Product remained strong in the first quarter.

Economists had expected income to improve 0.9 percent in February and to increase 0.6 percent.

That income grew faster than spending was a boost to personal savings which increased to $310.9 billion in February from$262.5 billion in January, up from 2.2 percent of disposable (essentially after-tax) income to 2.6 percent.

Dividend income accounted for most of the growth in personal income ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô increasing $81.2 billion in February over January. Some of that increase may have been timing adjustments. Dividend income soared in December as companies paid out special dividends before the end of the year uncertain as to the effects of ""fiscal cliff"" negotiations and which might have affected dividend tax rates as of January 1. Dividends in December jumped $281.3 billion in December but then boomeranged to drop $375.2 billion in January. The February increase would have been a return to more normal payout rates.

Similarly, wage income increased $43.1 billion in in February after falling $41.9 billion in January.

Transfer payments ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô largely government payments through Social Security, Medicare and unemployment insurance ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô increased $9 billion in February, $4.3 billion of which was Social Security. Unemployment insurance payments, reflecting an improving labor market, dropped $1.5 billion.

The increase in personal consumption spending was the largest since September. For the first two months of the first quarter, personal consumption spending is running 0.9 percent ahead of spending in the fourth quarter defying forecasts that the January 1 elimination of the payroll tax holiday would cut into personal spending, about 71 percent of the nation's GDP. GDP could still struggle as other components ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ôinvestment and government spending ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô remain under pressure, the latter from sequestration cuts which went into effect at the beginning of March.

Most of the increase in personal consumption spending came in nondurable goods which increased $48.5 billion while spending on durable goods dropped $0.4 billion. (The balance of the increase in spending came in the services category -- $29.0 billion).

The drop in durable goods spending is a confidence indicator as durable goods spending is typically financed by borrowing.

Even with continued low interest rates, personal interest payments ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô for non-mortgage debt ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô increased to $176.3 billion in February from $174.1 in January.

Inflation as measured by personal consumption expenditures price index rose 0.4 percent in January after having been flat in January. Excluding volatile food and energy, the core PCE index rose 0.1 percent in February compared with a 0.2 bump in January. Year-year, overall inflation was 1.3 percent in February unchanged from January and core inflation was also 1.3 percent in February, also unchanged from January.

The increase in spending was in line with economist forecasts.

In January, dividend payments fell $362 billion or 34.8 percent. At the same time though, wages and salaries dropped $43 billion, all in the private sector. Government transfer payments ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô including Social Security payment and unemployment insurance compensation ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô rose $6.7 billion, half of which was Social Security as new cost-of-living adjustments kicked in January 1.

The $18 billion month-month increase in personal spending was slightly higher than the $15 billion jump in December.

Virtually all of the increase in spending came for services which rose $28 billion. Purchase of non-durable goods in January was flat to December and the purchase of durable goods, usually a sign of confidence because those purchases are funded by borrowing, fell $10 billion.

That spending rose in December because of an increase in durables in the aftermath of Superstorm Sandy had been seen as unsustainable.

Personal interest payments ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô non-real estate related ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô rose $3.6 billion in January, the first month-month increase since September, largely because of December durables purchases.

As spending grew faster than income in January, personal savings fell from $797 billion in December to $284 billion in January and the savings rate decline to 2.4 percent from 6.4 in December.

Inflation, as measured by personal consumption expenditures, considered the Federal Reserve's favored gauge, remained tame, dropping to 1.2 percent (year-year increase) from 1.4 percent in December. Core inflation ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô excluding food and energy -- was 1.3 percent, down from 1.4 percent in December.

_Hear Mark Lieberman Friday on P.O.T.U.S. radio, Sirius-XM 124, at 8:45 am eastern time and again at 11:45 am._

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.

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