December recorded a slight increase in U.S. personal incomes for the first time in eight years and consumer spending showed a slight hike of 0.2 percent.
According to a report by the Commerce Department, Thursday, Americans saw a 2.6 percent rise in personal income in the month of December which is the highest in eight years. This came as a pleasant surprise as business experts had only expected a 0.8 percent rise.
A major reason for the rise in personal income for the month of November and December is the accelerated bonuses and special dividends companies gave out to beat the rising tax rates.
Even though gains weren't distributed evenly throughout workforces, consumer spending also saw a slight increase of 0.2 percent in the month of December. Household purchases make up for 70 percent of consumer spending in the U.S.
"Consumers closed out the year on a relatively strong note," said Guy Berger, an economist at RBS Securities Inc. in Stamford, Connecticut, who correctly projected the gain in spending. "We have a fair amount of resilience in demand. But, this quarter doesn't look great for spending as there will be some intense headwinds."
However, according to a report by AP, experts predict that consumer spending is likely to slow down this year - the reason being people receiving smaller take home paychecks because of the increase in Social Security taxes. Also, since most bonuses and dividends were paid out in December, January will, reportedly, show a slow income growth.
Income tax rose by 2.7 percent in December, the effect of which will be seen in January's paychecks and spending trends.
"With appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline," the central bank said in a statement. Household spending "advanced," though "the unemployment rate remains elevated," it said.
