MACRO: Strong spending, even stronger income growth

• US Personal income rises more than expected
• Personal spending in the US surged 2.4 %  in January

Personal incomes jumped sharply higher in January mainly thanks to the $ 600 stimulus payment. Today's reading showed a 10% MoM increase in January, accelerating from a 0.6 % rise in December and beating analysts' estimates a 9.5 % increase. It was the largest gain in income since April 2020 which in turn prompted a 2.4% MoM increase in personal spending. It is the sharpest rise in consumer spending since June, however it came slightly below market expectations of 2.5%.

Meanwhile core PCE inflation - Fed's favourite measure rose 0.3 %, the same as in the previous month but beating market expectations of a 0.2 % gain. Year-on-year, core index advanced 1.5 %.

As first glance today's reading pointed to a very strong start to the year. On the flip side, today's readings show just how dependent US citizens became on the government. Personal Current Transfer payments are benefits received by persons for which no current services are performed. They are payments by governments and businesses to individuals and nonprofit institutions serving individuals. This number increased from the $3.8 trillion in December to $5.781 trillion in January, and currently stands $2 trillion above the pre-Covid trend where transfer receipts were approximately $3.2 trillion. If we ignore the $ 2 trillion annual increase in government transfers, then personal income excluding government subsidies actually fell by $ 22.3 billion from $15.696 TN to $15.673 TN, which is not a good sign for a recovering economy.