Stimulus Payments Drive 10% Increase in Personal Income in January

young woman open purse to payment for clothes at shopping store and her wearing medical mask for prevention from coronavirus (Covid-19) pandemic.
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The Commerce Department released its January personal income and inflation estimates. The good news? Personal income was up 10% due to the stimulus checks that were distributed early in the month, according to CNBC. The last increase of this magnitude was in April 2020, after the first round of stimulus checks.

See: Are You Eligible for a Third Stimulus Check – and If So, When Will You Get Yours?
Find: Essential Money Tips for Surviving the ‘Pandemic Spiral’

Despite concerns that these payments would drive up inflation, the personal consumption expenditures price index was up just 0.3%, according to Federal Reserve data. On an annualized basis, that inflation rate works out to 1.5%. The current Federal Reserve target for average inflation is 1.5%, with an allowance for inflation to go as high as 2%, according to CNBC, to average out the 0.62% inflation in 2020.

The data shows that retail expenditures increased 2.4%, so the stimulus did indeed stimulate economic activity, according to CNBC. Not all of the money was spent, because the personal savings rate increased 20.5%, the highest rate since May of 2020, when the first round of stimulus checks and increased unemployment benefits were in the economy.

See: Economy Explained – What Is Inflation and What Does It Mean When It Goes Up or Down?
Find: Americans’ Savings Drop to Lowest Point in Years

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Americans in general have a low savings rate. The thought is that this higher rate is temporary and will be reversed as pandemic restrictions ease. People are saving for vacations, parties and other things that will become important when we are allowed to be out and about.

The Senate is currently hashing out the passage of a new round of stimulus payments that would most likely be distributed in March. We can look for similar data then.

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About the Author

Ann Logue is a writer specializing in business and finance. Her most recent book is The Complete Idiot’s Guide: Options Trading (Alpha 2016). She lives in Chicago.
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