U.S. household income rose rapidly last month as the government handed out enhanced tax breaks for parents, priming the economy for stronger growth once the Delta variant subsides.
The 1.1% gain in household income, reported Friday by the Commerce Department, was the biggest jump since March and caught many analysts by surprise. It was largely due to an expanded child tax credit included in a $1.9 trillion pandemic-relief package passed by Congress this spring. The gain in income poured even more cash onto Americans’ already high savings.
Meantime, growth in consumer spending slowed last month to 0.3%—less than a third June’s spending increase of 1.1%. Economists believe the Delta variant, a highly contagious strain of Covid-19, is to blame for the slower growth. Consumer fears of infection, new business restrictions and mask mandates are likely leading households to pull back in some areas, economists said. Spending on services grew last month while spending on goods declined, Friday’s report showed.
Spending growth could further slow with the rash of canceled events—including concerts, industry conferences, and festivals—announced in recent days.
“The American public is withholding cash as they assess the risks around the Delta variant,” said Joseph Brusuelas, chief economist at RSM US LLP. “Once that peaks and the coast is clear, there’s ample fuel to see a re-acceleration in household spending later this quarter and more importantly into the holiday season.”
