With the threat of the fiscal cliff looming, many businesses began thinking about the tax implications of going off of the cliff, and they adjusted their payouts accordingly. As proof of this, the Bureau of Economic Analysis (BEA) said that personal income soared 2.6 percent in December, building on the 1.0 percent gain in November.
Digging deeper into the data, it is clear that many companies pushed up their dividend payouts to avoid possible higher taxes in 2013. (As part of the fiscal cliff deal enacted on January 2, 2013, dividend taxes went from 15 percent to 20 percent for those individuals earning more than $400,000, but it could have gone up to 39.6 percent had we gone over the fiscal cliff.) Personal dividend income increased 4.5 percent in November and a whopping 34.3 percent in December. There has also been evidence of bonuses being pushed into December, as well, even though BEA does not keep track of that.
Manufacturing wages and salaries rose from $751.4 billion in November to $756.2 billion in December. On average, manufacturing wages and salaries have continued to rise, up 7.2 percent over the past year. This is a reflection of the increased production in the sector overall. In contrast, wage and salary disbursements in all private sectors rose 4.4 percent over the past year.
While income was increasing significantly in December on end-of-year moves, personal consumption was growing more slowly, up 0.2 percent. The largest spending gains were in durable goods, up 1.0 percent (and extending the 2.7 percent increase of November). Based on the GDP data released yesterday, we know that much of this increase was in the motor vehicle sector. Nondurable spending declined 0.2 percent. For the year, though, personal spending numbers have been decent, up 3.6 percent, helping to boost demand for manufactured goods.
With income increasing substantially outstripping spending growth, the savings rate jumped from 4.1 percent in November to 6.5 percent in December. It had been as low as 3.3 percent in September. The savings rate is now at its highest point since May 2009; although, I would expect for it to settle back to reality in January once these one-time-only wage increases are no longer part of the picture.
Chad Moutray is the chief economist, National Association of Manufacturers.