U.S. Personal Income Pulls Back Sharply After Spiking On Stimulus Checks

After reporting a substantial increase in U.S. personal income in the previous month, the Commerce Department released a report on Friday showing personal income pulled back sharply in the month of February.

The Commerce Department said personal income plunged by 7.1 percent in February after skyrocketing by an upwardly revised 10.1 percent in January.

Economists had expected personal income to plummet by 7.3 percent compared to the 10.0 percent spike originally reported for the previous month.

Disposable personal income, or personal income less personal current taxes, also tumbled by 8.0 percent in February after surging up by 11.4 percent in January.

The sharp pullback in personal income primarily reflected a decrease in government social benefits following the distribution of $600 stimulus checks in January.

The report also showed personal spending slumped by 1.0 percent in February after soaring by an upwardly revised 3.4 percent in January.

Economists had expected personal spending to decrease by 0.7 percent compared to the 2.4 percent jump originally reported for the previous month.

Excluding price changes, personal spending dove by 1.2 percent in February after shooting up by 3.0 percent in January.

“The 1.2% drop in real consumption in February reflected the reversal of the boost from the $600 stimulus checks and disruption caused by the severe winter weather,” said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, “With weather returning to seasonal norms and the next round of stimulus checks already mostly disbursed, we expect a strong rebound in March, with overall consumption growth of close to 10% annualized in the first quarter.”

With income pulling back by much more than spending, personal saving as a percentage of disposable income tumbled to 13.6 percent in February from 19.8 in January.

Meanwhile, a reading on inflation said to be preferred by the Federal Reserve showed the annual rate of core consumer price growth slowed to 1.4 percent in February from 1.5 percent in January.

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