Feeling poorer?
Americans saw their income drop so dramatically in January that it marked the deepest one-month decline in 20 years.
Personal income decreased by $505.5 billion in January, or 3.6%, compared to December (on a seasonally adjusted and annualized basis). That's the most dramatic decline since January 1993, according to the Commerce Department.
It's something of a combination of one-time events, though.
Monthly income was
unusually high in December because companies paid out early dividends to avoid upcoming tax hikes. Companies like Wal-Mart, Oracle, and
Costco Wholesale Corp paid special dividends to their shareholders at the end of 2012, instead of waiting until 2013.
In doing so, they helped their high-income shareholders (individuals earning at least $400,000 a year, or married couples earning $450,000) avoid paying higher taxes on their gains. In their
last-minute fiscal cliff deal, lawmakers decided to raise dividend tax rates for high-income households from 15% to 20%.
The
payroll tax cut's expiration also played a role in January's drop, because most workers have to pay 2 percentage points more in taxes this year. The Commerce Department's "personal income" calculation subtracts out individuals' contributions to government social insurance programs like Social Security, which are funded by the payroll tax.
Excluding those special factors, the Commerce Department estimates that after-tax income actually increased 0.3% in January.
Meanwhile, economists are closely watching consumer spending, which accounts for about two-thirds of the U.S. economy.
They're waiting to see how the payroll tax hike will affect the broader recovery.
Comment: The Consumer "Confidence" Index is, like all other government statistics, nothing but smoke and mirrors, just like the "employment" rate. Just reverse everything the government say, and you are far more likely to be near the truth.