Quirks in the January Data: Income vs. Consumption

Chief Economist Eugenio J. Alemán discusses current economic conditions.

Personal income increased more than expected in January, up 1.0% (or $233.7 billion). The increase in January closely matches what happened in January of 2023 when it increased by 0.95% (or $213 billion). However, the composition of the increase was very different. In January of 2023, wages and salaries increased by 1.59% (or $179.80 billion). In January of 2024, they did by only 0.36% (or $43.4 billion).

Supplements to wages and salaries increased by 0.59% (or $14.7 billion) in January of this year but increased by 1.1% in January of 2023 (or 26.30 billion). It is true, Personal Consumption Expenditures (PCE) inflation in January of 2023 was double what it was in January of 2024, 0.6% versus 0.3%. However, what made personal income so strong in January of 2024 compared to 2023 was, mostly, personal current transfer receipts, which increased by 2.61% (or $106.4 billion) in January of this year versus a slight decline, of 0.02% (or -$2.10 billion) in January of 2023. Social security payments were up by 3.47% (or $47.7 billion) in January of 2024 compared to 9.12% (or $111.60 billion) in January of 2023. One of the largest differences in personal income was a 4.1% (or $76.0 billion) increase in personal dividend income in January of 2024 compared to 0.98% (or $17.70 billion) in January of 2023.

But there are several things to point out from the personal income release from the income side. First, January’s numbers are probably not going to be repeated, because of the characteristics of January's adjustments to income and because the increase in income was not due to higher wages and salaries, as was the case last year. Second, what we need to check is disposable personal income, and disposable personal income was up by just 0.33% (or $67.6 billion) versus 2.64% (or

$508.7 billion) in January of 2023. True, this measure going forward will be highly dependent on the payment of current taxes, which declined by 9.65% (or $295.7 billion) in January of 2023 but increased by 5.95% (or $166.2 billion) in January of 2024. We should not expect current taxes paid to increase by so much in February so disposable income will improve compared to January. However, personal current taxes remained relatively stable during 2023 so if 2023 is a guide, we should not expect them to come down considerably.

Personal Income