Americans earned more in December and socked it away

dollars and cents
Consumers are earning more but are increasingly socking it away, rather than spending it. Kristin Keith/MEDILL

The economic recovery remains painfully slow and new signs of consumer caution are emerging suggesting Americans would rather save than spend any upticks in income.

According to the U.S. Commerce Department, personal income increased by $61.3 billion, or 0.5 percent, in December, after a 0.1 percent rise in November.

Real disposable income (or income after taxes, adjusted for inflation) rose by 0.3 percent in December, compared with a slight 0.1 percent drop in November.

At the same time, consumer spending was unchanged in December, following a 0.1 percent rise the previous month.

What that means is, we’re putting away a little bit more in savings accounts rather than heading to the mall. The personal savings rate rose to 4 percent in December, an increase from 3.5 percent in November.

“The question is where saving will go from here. There really is no precedent for the current environment,” said Mesirow Financial chief economist Diane Swonk in a blog post. “The saving rate tends to fall when confidence and access to credit are improving. However, most people have little confidence in their pensions and may want (if they can) to save more to compensate for what they see as an uncertain future.”

Inflation’s also holding back a bit, with the personal consumption expenditures price index, or PCE, rising by 0.1 percent in December, for a 2.4 percent gain from a year ago, and the core PCE price index (excluding food and energy) increasing by 0.2 percent, up 1.8 percent for the year. At that pace, the core PCE rate sits below the Federal Reserve’s proposed ideal target of 2 percent.

Despite lingering concerns about unemployed Americans being able to find work, those with jobs are still seeing their incomes increase slightly. Overall personal income for the full 2011 year increased by 4.7 percent from the previous year, compared with a 3.7 percent increase in 2010.

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