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U.S. Personal Income and Spending Rise in December, Inflation Up

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December Economic Snapshot

U.S. personal income increased by $86.2 billion (0.3 percent monthly rate) in December. Disposable Personal Income (DPI) also rose by $75.7 billion (0.3 percent), while Personal Consumption Expenditures (PCE) saw an increase of $91.0 billion (0.4 percent).

Personal outlays, which encompass PCE, personal interest payments, and current transfer payments, collectively increased by $90.2 billion. Reflecting these trends, personal saving reached $830.8 billion in December. The personal saving rate, calculated as personal saving as a percentage of disposable personal income, stood at 3.6 percent.

Drivers of Income Growth

The increase in current-dollar personal income was primarily driven by two key components:

  • Personal Current Transfer Receipts: This category saw an increase of $38.4 billion. This included a $23.0 billion rise in other current transfer receipts, partially due to a settlement paid to U.S. households related to the 2023 Maui wildfire. Additionally, government social benefits, led by Medicare, contributed a $15.4 billion increase.
  • Compensation: A total increase of $31.0 billion was recorded in compensation. This consisted of a $19.0 billion rise in private wages and salaries (mainly in services-producing industries) and a $5.3 billion increase in government wages and salaries.

Consumer Spending Trends

The $91.0 billion increase in current-dollar PCE primarily reflected a substantial $98.5 billion increase in spending on services. This growth in service consumption was partially offset by a $7.5 billion decrease in spending on goods.

Inflation Indicators

Real PCE, which adjusts for inflation, showed a modest increase of $11.5 billion (0.1 percent monthly rate) in December.

Regarding price changes:

  • The PCE price index for December increased 0.4 percent from the preceding month.
  • Excluding food and energy, the core PCE price index also increased 0.4 percent month-over-month.

On a year-over-year basis, the PCE price index for December increased 2.9 percent. Excluding food and energy, the core PCE price index increased 3.0 percent from one year ago.