Last month, we discussed how many businesses accelerated their payouts with the threat of the fiscal cliff looming. Indeed, dividend payouts jumped a revised 32.8 percent in December as companies prepared for the possibility that dividend taxes might rise from 15 percent to 39.6 percent. (The fiscal cliff deal enacted on January 2, 2013, pushed them up to 20 percent instead for individuals earning more than $400,000.) The result was a 2.6 percent increase in personal income in December, with the savings rate soaring from 4.0 percent to 6.4 percent.
Of course, these payouts were a one-time event, and January’s numbers were bound to swing in the opposite direction, which it did. The Bureau of Economic Analysis (BEA) said that dividend income fell 34.8 percent in January. BEA does not track bonus income, but this might also be a factor. As a result of the loss of these accelerated payouts, personal income plummeted 3.6 percent in January. When you include taxes into the conversation, disposable personal income dropped 4.0 percent. This latter measure would also incorporate the higher payroll taxes that were deducted as a result of the expiration of the Social Security tax holiday.
Aside from the tax situation, wages and salary disbursements were also lower in January. In total, they declined by 0.6 percent. This was true for manufacturers, as well, with manufacturing wages and salaries decreasing from $751.9 billion to $748.6 billion. Overall, wages and salaries in the manufacturing sector were mostly flat in the second half of 2012, as we grappled with slower sales growth and worries about the U.S. fiscal situation.
Meanwhile, personal spending rose 0.2 percent in January. This gain was mostly in services, with goods consumption down and nondurable spending flat. The decline in durable goods spending, though, followed two strong months of growth. Looking at a longer time horizon, durable goods spending increased 6.3 percent in2012, and nondurable goods purchases were up 3.5 percent.
With personal income sharply lower and modest growth in personal spending, the savings rate declined from 6.4 percent in December to 2.4 percent in January. This continues the wild volatility due to the fiscal cliff discussion above. February’s data should report a savings rate more consistent with the rates observed before December. The savings rate was 3.4 percent in October and 4.0 percent in November. I would expect for it to settle out somewhere between those numbers.
Chad Moutray is chief economist, National Association of Manufacturers.