Personal Taxes

U.S. Private Earnings Up 10% in January, Spending Up 2.4% – third Replace

By Josh Mitchell

Household pandemic aid is pouring money into the U.S. economy, preparing it for rapid growth this year.

Household income – the amount Americans received from wages, investments and government programs – rose 10% in January from the previous month, the Commerce Department said on Friday. The surge was the second largest on record and was only dwarfed by last April’s profit when the federal government sent a first round of pandemic aid payments. Household income has risen 13% since February 2020, the month before the pandemic that brought much of the economy to a standstill.

The January household income surge was almost entirely due to federal pandemic aid, which was included in a $ 900 billion stimulus plan that went into effect in late December. This package included one-time cash payments of $ 600 and a special weekly unemployment benefit of $ 300 that the government began to send to households.

More government money is likely to be pouring into the economy soon. The Democratic-run house was expected to pass just under $ 1.9 trillion in Covid-19 relief bill on Friday that would extend additional pandemic aid, including $ 1,400 per person for many Americans. It would then go to the Senate, where the Democrats hope to see the package through a process that doesn’t require votes from Republicans who attacked it as being too big.

Americans spent part of their income last month, increasing spending 2.4%, their first profit in three months. Households by and large spent on goods, especially big-ticket, durable items. For the first time since October, spending on services has also increased.

But households have also stowed a large part of the money: Household savings amounted to 3.9 trillion US dollars last month, compared with 1.4 trillion US dollars last February.

“The levels are off the charts,” said Joseph Brusuelas, chief economist at RSM US LLP, of the cash reserves. “You’re going to see the fuel for a pretty big, consumer-led boom this year that will spill over into the next.” He expects the economy to grow 6.5% or more this year.

Employment growth resumed in January after falling in December, while demand increased in some parts of the economy such as construction, warehousing and manufacturing. And higher-income households who cannot travel or eat out have built up large amounts of savings.

The next round of stimulus payments could be paid to households quickly after President Biden signed it into law. The Internal Revenue Service has shown last year that it can transfer the majority of money to bank accounts within a week or two of it going into effect.

In addition, the IRS will send the regular refunds during the tax return season. Officials expect to deliver the first major wave of refunds to low-income households in the first week of March.

Other parts of the pandemic bill under scrutiny in Congress would be phased out, including the $ 400 weekly unemployment insurance surcharge and monthly child tax credit prepayments, which would start as early as July.

The gross domestic product fell by 3.5% in 2020 compared to 2019, the Ministry of Commerce announced on Thursday. In a Wall Street Journal poll earlier this month, economists expected average GDP growth of nearly 4.9% this year.

There are major risks that could undermine economic recovery. While U.S. citizens receive the coronavirus vaccine, it will likely take months for the country to achieve herd immunity, medical experts say. Another virus resurgence could scare consumers and cause businesses to close or scale back. Even if the nation reaches herd immunity, many consumers may be afraid to venture out in public, say economists.

Consumer spending is the biggest driver of growth in the US. Spending spiked in the summer, grew slightly in early fall, and then fell in the last two months of 2020. The decline came late last year when states and cities ordered businesses to close or reduce value again as the virus infections increase again and limit consumer spending options. The effects of an earlier stimulus package passed at the start of the pandemic also subsided.

New viral infections have declined, and several large states, including California and Texas, have eased restrictions in the past few weeks.

Scott Molloy, 45, was fired in August as a senior project manager for a real estate developer in San Diego. He started his own consulting business and restored some but not all of his income.

Like most Americans, he spent less money during the pandemic, largely because he didn’t eat or travel, and saved $ 300 to $ 400 a month.

But last week, not long after the California governor lifted food restrictions, Mr. Molloy went out for burgers and beer at a pub near the ocean with a friend. And he has a trip planned for April to go to a second home in Oregon, visit relatives in San Francisco, and visit friends in Lake Tahoe. He plans to fly back. “It’s going to be a full vacation that I haven’t had in over a year,” said Molloy.

Such spending will help the economy return to its pre-pandemic strength, along with additional rebound in a labor market that is still digging out of the hole created by the pandemic. Consumer spending held up well during the pandemic, as consumers placed more emphasis on goods, especially durable items such as cars, home appliances, and items purchased online. Many people have also upgraded their homes.

However, the service side – restaurants, nail salons, gyms, airlines – continues to suffer. Spending on services is expected to rise this spring as more people get vaccinated.

“People will travel more,” says Lydia Boussour, senior economist at Oxford Economics. “They’ll go back to restaurants and bars, they’ll go back to the gym – all the things they basically couldn’t do before the pandemic. You’re really going to see a surge in spending here.”

Richard Rubin contributed to this article.

Write to Josh Mitchell at joshua.mitchell@wsj.com

(END) Dow Jones Newswires

Feb. 26, 2021 5:20 PM ET (10:20 PM GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.

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