U.S. personal income surged 2.6% in December, the largest monthly increase in eight years. As today’s Hot Chart shows, this unexpected rise propelled the savings rate to a post-recession high of 6.5%. What happened in December? To avoid the higher tax grab on dividend income that takes effect in 2013, corporations opted to shower investors with special dividend payments. The windfall was an unprecedented $305 billion in Q4 2012, with $268 billion coming in December alone. This is to say that three-quarters of the increase in personal income in December was accounted by dividend income -- well above its normal share of around 6%. As shown, the surge in December was such that dividends overtook interest rates as a source of income. This development will obviously not be sustained in Q1 2013. So expect a double-whammy to hit households in January. Not only will dividend payouts revert to more normal levels, personal income will also be negatively impacted by a mix of higher payroll and income taxes. We expect personal disposable income to fall by more than 4% in January. This sets the stage for tepid consumption growth and a big drop in the savings rate next month.Stéfane Marion
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