Boost in Household Income Drives the US Economy for Stronger Growth


American household income increased 10% in January as the government delivered stimulus payments to households and consumer spending increased 2.4%, setting the economy for a burst of growth this year .

The increase in revenue was the second-largest on record, dwarfed only by the increase last April when the federal government sent out an initial round of pandemic aid payments, the Commerce Department said on Friday. The January increase in consumer spending was the first since October.

Under a $ 900 billion stimulus program signed by former President Donald Trump in late December, the federal government has been sending one-time cash payments of $ 600 to most households. It has also been paying unemployed workers $ 300 a week in addition to their normal unemployment benefits. Meanwhile, job growth resumed in January after a decline in December. And higher-income households, who cannot travel or go out to dinner, have accumulated a high level of savings.

“That combination will be quite powerful in driving consumer spending this year,” says Lydia Boussour, senior economist at Oxford Economics. She and her colleagues project that by this summer, US production will have fully recovered from last year’s pandemic-related slowdown, primarily due to an increase in consumer spending.

Oxford Economics predicts that production will grow 7% this year, which would be the strongest growth in decades. In a Wall Street Journal poll earlier this month, economists on average expected gross domestic product to expand nearly 4.9% this year.

Gross domestic product fell 3.5% in 2020 compared to 2019, the Commerce Department said on Thursday.

Consumer spending is the biggest factor behind growth in the US Spending skyrocketed in the summer, grew modestly in the early fall, and then fell in the final two months of last year. The decline late last year came as states and cities ordered businesses to close or downsize again, as virus infections re-emerged, restricting consumers’ ability to spend. Furthermore, the effects of an earlier stimulus bill passed at the start of the coronavirus pandemic faded.

Thanks to new stimulus efforts and high levels of savings among wealthy and high-income households, households have money to spend. Income was above pre-pandemic levels in December and the savings rate is historically high. New virus infections have been declining and several large states, including California and Texas, eased restrictions in recent weeks.

These developments appear to have already translated into a boost in consumer spending. Retail sales, which measure how much households spent on stores and restaurants, rose in January to the most since the beginning of last summer, previous government data shows. Friday’s report will cover how much they spent on all kinds of goods and services.

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, recouping some of his income, but not all.

Like most Americans, he has cut his spending during the pandemic, mainly by not eating out or traveling, saving between $ 300 and $ 400 a month.

But last week, shortly after the California governor lifted eating restrictions, Molloy went out for burgers and beer with a friend at a pub near the ocean. And he’s planned a trip for April to drive to a second home in Oregon, visit family in San Francisco, and visit friends in Lake Tahoe. Plan to fly back. “It will be a full-blown vacation that I haven’t taken in over a year,” Molloy said.

Such spending will help the economy return to its pre-pandemic vigor, along with a further recovery in a job market that is still emerging from the hole created by the pandemic. Consumer spending has held up well during the pandemic as consumers shell out more for goods, particularly durable goods like cars, appliances, and items purchased online. Many people have also improved their homes.

However, the services side (restaurants, beauty salons, gyms, airlines) continues to suffer. Spending on services is expected to increase this spring, as more people get vaccinated.

“People will travel more,” says Ms. Boussour. “They will go back to restaurants and bars, they will go back to the gym, all the things that they basically couldn’t do before the pandemic. This is where you will really see an explosion in spending. “

Write to Josh Mitchell at [email protected]

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