After two months of declines, the U.S. Bureau of Economic Analysis reports that December 2020 saw an increase of 0.6% in personal income nationwide as the CARES Act, which provided income stimulation beginning in April, wound down.
CARES Act’s replacement, the Coronavirus Response, and Relief Supplemental Appropriations (CRRSA) Act, was enacted on December 27, 2020, to provide a new round of stimulus payments and social benefits as consumer spending decreased for the second straight month.
Increases in government social benefits, compensation and personal income receipts on assets spurred the growth in personal income over the period by $116.6 billion. Dividend income, as many companies reported favorable financials in the last quarter, accounted for the bulk of the increase in personal income receipts.
Overall for 2020, personal income increased by $1,173.5 billion, far eclipsing the increase in 2019 of $699.7 billion. While this increase would normally indicate a booming economy, of the 2020 increase, $1,143 billion came in the form of government social benefits to persons versus just $155.1 billion in 2019.
Employee compensation increased by just $56.6 billion in 2020 compared to an increase of $482.3 billion in 2019, $527.6 billion in 2018 and $458.7 billion in 2017. Unemployment insurance was the largest contributor to the increase in 2020 at $523.6 billion followed by $274.7 billion in economic income payments (the stimulus payments many Americans received).
New closures and restrictions due to the third wave of the pandemic in the fall of 2020 contributed directly to a decrease in month-over-month consumer spending in November and December, coupled with an increase in personal savings in December of $150.8 billion. Personal consumption expenditures were down 0.2% in December, a decrease of $79.8 billion. Of that, $71.9 billion represented goods, with just $17.6 billion for services rendered.
The overall decrease in goods (both durable and non-durable) was slightly offset by increases in spending on motor vehicles and parts, led by new light trucks. Within services, food and accommodations spending was down, along with spending on healthcare. Household utilities, led by electricity, were higher.
The personal savings rate for 2020 as a percentage of disposable personal income was 16.4%, the highest rate since 1945. This was a 6% increase over 2019, the largest increase in personal savings rate since 1984. Overall personal saving in 2020 was $2,881.6 billion, an increase of $1,650.4 billion over the previous year.