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US income growth surges in December

Thursday, January 31 17:51:19

American income growth surged in December as companies rushed to make dividend payments before higher tax rates set in, while buoyant wage growth also gave a lift to households.

U.S. personal income rose 2.6 percent last month, the biggest increase in eight years, the Commerce Department said today.

While much of the gain was due to special payments aimed at beating tax increases due to begin this month, wages still grew at one of the faster rates seen last year.

That should lend support to consumer spending and provide some underlying momentum for the economy despite a surprise contraction in gross domestic product during the fourth quarter.

"Even abstracting from the one-off surge in dividend payments ... the general tone of this report was quite encouraging," said Millan Mulraine, an economist at TD Securities in New York.

The increase in overall personal income was well above analysts' expectations for a 0.8 percent gain.

However, another economic report showed an increase in new jobless claims last week, and U.S. stocks traded lower as investors sifted through the mixed data, while prices for U.S. Treasuries were higher. The big rise in incomes put consumers on stronger footing entering the new year, even if the gains may not have been distributed evenly throughout the workforce. Extra dividend payments likely went to the nation's wealthier households who derive more of their income from investments.

Still, wages and salary payments grew 0.6 percent last month, building on a sizable 0.9 percent gain in November.

The income gains helped push the saving rate, the amount of disposable income households socked away, to 6.5 percent, the highest since May 2009. ( C) Reuters