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Americans Suffer Biggest Monthly Income Drop in 20 Years

Americans Suffer Biggest Monthly Income Drop in 20 Years

In January, Americans suffered the biggest plunge in monthly personal income in 20 years, erasing $505.5 billion of wealth from their wallets.

Driving the income nosedive were the 2% payroll tax increase, soaring gas prices, and higher than typical December dividend payments designed to dodge the dividend tax hike from 15% to 20% for higher income Americans.

Personal savings also took a hit.  In December, Americans saved an average 6.4% of their disposable income. In January, that figure dropped to just 2.4%, the lowest saving rate since November 2007.

Still, January consumer spending increased for the third month in a row.  Analysts say consumer buying behavior lags tax raises and will likely reduce in the months ahead.

“One thing is perfectly clear — most American will remain cautious in their spending habits,” said director of consumer economics at IHS Global Insight Chris Christopher. 

Early signs indicate that is already happening.  Last month internal emails by Walmart executives said February “sales are a total disaster” and were the worst in nearly seven years.

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