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Personal Income Rose in January, but Apparel Spending Slowed

Americans got a raise in January, but used it to stay warm and healthy, according to data released Tuesday by the U.S. Department of Commerce.

After falling by 1.6% in December compared to the same month a year before, personal disposable (after-tax) income surged by 4% in January. Consumer spending rose by 3.5% compared to the same month last year, with a surge in services spending — mostly in heating and health care — comprising most of the increase.

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The December drop in income was actually due to a December 2012 anomaly, caused by high income earners who accelerated income into 2012 to avoid higher 2013 income tax rates. This acceleration took a big toll on January 2013 income growth, as shown in the chart below, which made this year’s January disposable income figure seem like a bigger windfall than it really was. On a 12-month smoothed basis, disposable income grew by only 2%, up from 1.7% in December.

Total personal consumption expenditures totaled $11.7 trillion in January, a 3.2% rise on a 12-month smoothed basis, their biggest monthly increase in five months.

Unlike in recent months when durables spending drove overall consumption, a big portion of January’s increase in consumer spending was on services. The jump in heating spending was due to the unseasonably frigid temperatures in much of the country. Health care spending rose as many newly-insured Americans under the Affordable Care Act (“Obamacare”) had long-postponed doctor appointments. Many health care industry experts expect this health care spending trend to continue throughout 2014.

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The personal savings rate edged down to 4.3% in January, continuing the gradual decline begun in September.

Apparel and Footwear Spending

Although growth in consumption of apparel and footwear has been declining over the past few months, and now lags overall spending growth, it’s still relatively healthy compared to spending on other nondurables.

Apparel and footwear expenditures rose by 1.8% on a 12-month smoothed basis in January, their smallest monthly increase in almost three years. Spending on footwear, a category that enjoyed tremendous growth in 2012, has been relatively sluggish for the past year, despite slightly outpacing apparel spending on a 12-month smoothed basis.

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Women’s apparel spending increased by 1.9% in January, edging ahead of both men’s and children’s in the month, though all three categories have been declining.

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