Household income in the US rose 10% in January as government stimulus payments to households and consumer spending rose 2.4%, preparing the economy for a burst of growth this year.
The rise in income was the second largest on record, but was only eclipsed by last April’s rise when the federal government sent a first round of pandemic relief payments, the Commerce Department said Friday. The increase in consumer spending in January was the first since October.
Under a $ 900 billion stimulus program signed by former President Donald Trump in late December, the federal government has sent one-off cash payments of $ 600 to most households. It also paid unemployed workers $ 300 a week on top of their normal unemployment benefits. Meanwhile, job growth resumed in January after a decline in December. And households with a higher income that cannot travel or eat out have a high level of savings.
“That combination will be pretty powerful in boosting consumer spending this year,” said Lydia Boussour, senior economist at Oxford Economics. She and her colleagues predict that US manufacturing will be fully recovered from last year’s pandemic-related downturn this summer, mainly driven by a surge in consumer spending.
Oxford Economics predicts production will grow by 7% this year, which would be the strongest growth in decades. In a Wall Street Journal poll earlier this month, economists expected gross domestic product to grow by nearly 4.9% on average this year.