Declining Sentiment Despite Increased Income & Savings

Personal income in January exploded due to the $600 stimulus checks that were paid out early in the month. Monthly income growth was 10% which beat estimates for 9.4% growth and last month’s reading which was 0.6%. As we mentioned previously, when Trump delayed the bill for a few days, it pushed the benefits into January which made the impact clearer in the monthly data. The chart below maps out the change in income by category. Real personal income was 11.5% above its pre-COVID-19 level.

The $600 checks made January the 2nd largest month for transfer payments since the pandemic started. The checks went out a little quicker than the last stimulus. There probably won’t be much transfer payments in February. However, in March the 3rd round of checks should go out. As you can see, unemployment benefits also increased due to the extra $300 in weekly benefits in the last stimulus. That will be raised to $400 per week when the 3rd stimulus becomes law (the House passed it). 90% of the 11% boost in real disposable income growth came from the checks and 10% came from unemployment benefits.

Other income was negative and compensation growth was positive for the first time since the pandemic started. The hope is compensation starts increasing by April because at that point all of the checks should have gone out (depending on when the 3rd stimulus payments go out). We don’t think there will be a 4th round of stimulus checks.

If the labor market begins to recover on its own this spring/summer, this fiscal response will be used as a template on how to deal with future recessions. Some worry checks will create persistent inflation. So far, they haven’t. Most of the inflation will come from the reopening of the economy and dislocations in supply.

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