Disposable Income
Disposable income, or the money left over after taxes, dropped 4 percent after adjusting for inflation, the biggest plunge since monthly records began in 1959. The drop also reflected the lapse of the payroll tax holiday. Excluding the effect of the tax and other special factors such as the timing of bonuses and dividends, disposable personal income would have increased 0.3 percent in January, the same as in December, the report said.
Adjusting consumer spending for inflation, which renders the figures used to calculate gross domestic product, purchases rose 0.1 percent in January for a second month, today’s report showed.
Consumer purchases grew at a 2.1 percent annualized pace in the fourth quarter, up from 1.6 percent in the previous three months, as Americans bought more durable goods including automobiles.
The economy grew at a 0.1 percent rate from October through December, less than forecast, as companies reined in gains in inventories and national defense outlays dropped 22 percent, the biggest since 1972, Commerce Department data showed yesterday.
Little Inflation
Today’s report showed a price gauge tied to consumer spending, which are the figures tracked by Federal Reserve policy makers, was little changed in January from the prior month. Over the past 12 months prices rose 1.2, the smallest year-to-year gain since October 2009. The rate compares with the central bank’s goal of 2 percent.
Excluding food and energy costs, prices climbed 1.3 percent in January from the same month in 2012, the smallest year-to- year gain since April 2011.
Little inflation, combined with sluggish growth, mean Federal Reserve policy makers are likely to continue unprecedented monetary easing measures.
“Available information suggests that economic growth has picked up again this year,” Bernanke said earlier this week in testimony to the Senate Banking Committee in Washington.