Personal income jumped 10% in January, reaching its highest level on record after the distribution of the second stimulus checks and the additional $300 in weekly unemployment benefits kicked in last month, according to data by the Bureau of Economic Analysis. Spending and savings also increased.
"You get to January and this is when the $600 check show up. You see a lot of income, we see a lot of spending," Claudia Sahm, a senior fellow at Jain Family Institute and former Federal Reserve economist, told Yahoo Money. "We're going to see more [data] like that ... for at least another month."
Spending rose 2.4%, while the savings rate reached 20.5%. While the bulk of the $600 stimulus checks were sent in the last days of December and in January, the extra unemployment benefits started in mid-January. Those should continue to keep income, savings, and spending elevated into February, according to Sahm.
The savings rate, while higher, was still short of its pandemic peak of 33% in April. While some stimulus payments may have gone into savings accounts in January, they may still be spent in the coming months, Sahm said.
"Not everybody is going to get the check and go spend them right away," she said. "People spend, as in the past, probably somewhere between 50% and two-thirds of the payments within the first three to six months."
High-income households largely have driven the high savings rate during the pandemic, even though some low-income families may have some in savings.
The top quintile of households saved an average of $50,000 from March to December 2020, while the second-highest quintile averaged $9,000, according to an analysis by Oxford Economics. For the rest of the population, their savings are currently at pre-pandemic levels or, in some cases, lower.
'The increase could be bigger'
While the $900 billion stimulus package gave a boost to personal income, saving, and spending, the potential $1.9 trillion package Democrats want to pass this spring would help keep those metrics elevated.
President Joe Biden's proposal provides even larger direct payments than those sent in December. Individuals would get a $1,400 check plus $1,400 per dependent, up from the $600 for both. That means a family of four could get a $5,800 payment, versus $2,400 from the latest round.
The plan also would bump up the additional weekly unemployment benefits from $300 to $400. Both changes would provide an even bigger boost to Americans' incomes and spur more spending as the public health situation improves.
"The increase could be bigger nationally from the checks," Sahm said. "We are going to continue to see — even before the checks go out in April — the economy opening more and more people becoming, not just less afraid, but less at risk."