U.S. household income from salaries, wages, investments, and government aid edged up 0.6 percent in December from November, the first gain since August.
The bump came largely from a new round of $600 federal stimulus checks to individuals and the restoration of federal unemployment benefits passed by Congress toward the end of the month, analysts report.
The government supports will continue to buoy household incomes this month.
However, despite federal largesse, a rising stock market, and soaring home values, consumers are sitting on their wallets, many still fearful of an uncertain economic future and a virus epidemic that promises to worsen before it recedes.
In December, consumer spending retreated 0.2 percent, especially on pricey items such as major appliances and vehicles.
Spending on services rose, but barely.
Consumers’ reluctance to spend helped brake the economic recovery, analysts say. The U.S. GDP expanded at an annualized rate of 4 percent during 2020’s final three months, compared to 33.4 percent in the third quarter.
The difference between higher incomes and less spending left Americans with savings rates in record territory; December’s U.S. savings rate was 13.7 percent of income, compared to the 8-percent average before the pandemic arrived.
Collectively, U.S. households put $1.4 trillion into savings during the first nine months of 2020, about double the amount they banked in 2019, Berenberg Economics calculated.
The savings pace was not entirely voluntary: government shutdowns of restaurants, theaters, concerts, and other places where people gather left consumers with fewer opportunities to spend.
That will help push GDP growth at a 2.8-percent rate this quarter, market research firm IHS has predicted.
TREND FORECAST: With money to spend, given to them by the government and saving it because they are locked down and there are not a lot of places to spend it… when the world feels vaccine safe, there will be a consumer spending splurge, which in turn may also spark inflation as demand outpaces supply.
