Savings Rate Soars To Highest Since May 2009 On December Surge In Comp And Dividends Ahead Of Fiscal Cliff

Tyler Durden's picture

One look at the headline December data and one would get the impression that millions of Americans had started dealing meth out of some New Mexico RV, as personal income exploded by the most in 8 years, soaring some 2.6% in December to $13.936 billion. And since the surge in income, which was expected to rise some 0.8%, was hardly matched by a comparable boost to spending which missed expectations of 0.3%, rising just 0.2% - somewhat paradoxical considering the biggest boost to the otherwise negative Q4 GDP print was precisely this: spending and consumption, meant that the personal saving rate (which is merely a function of income less spending) soared to 6.5% or the highest since May 2009 - superficially an indication that consumers are hunkering down in expectation of something very bad.

Breaking Bad jokes aside, just how did the US consumer see their personal income soar as much as it did? Two things: on one hand the government's generosity, as it was "boosted by lump-sum social security benefit payments." But more importantly it was "boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates."

In other words, it was all a forward pull in comp in December to avoid the tax hikes from the January 1 Fiscal Cliff.

Sure enough, of the $352 billion increase in personal income, some $268 billion, or 76% was due to Personal Dividend Income which exploded by some 34.3% to $1.05 trillion as companies dividended income like crazy to avoid what they expected would be a huge increase in the dividend income tax.

In other words, look for personal income to plunge in January as all the forward pull effect from the Fiscal Cliff evaporates.

And what is worse, unless personal spending surges to catch up with the early income, Q1 GDP will be ugly to quite ugly.

Source: BEA