US personal incomes were boosted by 2.6% in December, the biggest monthly increase since 2004, as high earners sought to beat a New Year tax rise.
December 2012 was marked by accelerated bonus and dividend payments, the US Commerce Department said.
Income tax cuts dating back to George W. Bush’s presidency were due to expire in the New Year as part of the “fiscal cliff” of tax rises and spending cuts.
Despite the boost to incomes, consumer spending rose only 0.2% in the month.
“Personal income in November and December was boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates,” the Commerce Department’s Bureau of Economic Analysis said.
In the event, the tax rises went ahead only for individuals earning more than $400,000, as part of a last-minute deal negotiated between Republicans and Democrats in Congress to avert the fiscal cliff, with the top tax rate rising from 35% to just under 40%.
Capital gains tax also rose on January 1, 2013.
US personal incomes were boosted by 2.6 percent in December 2012, the biggest monthly increase since 2004, as high earners sought to beat a New Year tax rise
The 2.6% increase in incomes in December came on top of an unusually high 1% rise the month before.
Other factors also exaggerated the income increases in the two months, including lump-sum benefit payments handed out in December, and the loss of income for many in the New York area during October because of disruption from Storm Sandy.
Excluding all of these special factors, incomes rose 0.6% in November and just 0.4% in December – in line with the trend increase during the rest of the year.
Most of the windfall income was not spent, with the US personal savings rate increasing from 4.1% of income in November to 6.5% in December.
Indeed, the seasonally-adjusted growth in spending slowed noticeably in the run-up to Christmas, from 0.6% in November to 0.2% in December.
“Consumers finally realized about the tax increase so they pulled back a bit on their spending during the holiday season,” said Sam Bullard, senior economist at Wells Fargo.
Consumer spending is expected to remain weak in the New Year, owing to the impact of a rise in payroll taxes, also agreed as part of the fiscal cliff deal.
Personal incomes are also likely to experience a drag in January and over the coming months, reflecting the fact that most of the increase recorded in December was merely income that had been brought forwards.
Greek parliament has narrowly backed a fresh round of austerity measures, despite violent protests across the country.
The austerity package aimed at securing the next round of bailout funds was passed with 153 MPs in favor – a majority of just three.
The 13.5 billion-euro ($17.3 billion) bill includes tax rises and pension cuts.
Earlier, riot police fired tear gas towards protesters when they were attacked with petrol bombs in Athens.
Prime Minister Antonis Samaras warned before the vote late on Wednesday that without the bailout Greece would run out of money this month and face “catastrophe”.
The austerity package – Greece’s fourth in three years – is meant to close the nation’s budget deficit, lower its huge debt burden and make its economy more competitive.
MPs must now pass a revised budget on Sunday before eurozone finance ministers meet next week to approve 31.5 billion euros in fresh loans from the European Union (EU) and the International Monetary Fund (IMF) that Greece needs to avoid imminent bankruptcy.
But the level of resistance on the streets is a reminder that implementing the latest tough measures will be extraordinarily difficult.
The crucial vote was held after a lengthy debate in the 300-strong parliament.
Greek parliament has narrowly backed a fresh round of austerity measures, despite violent protests across the country
Immediately after the bill was adopted, co-governing New Democracy and Pasok parties expelled seven lawmakers from their ranks for failing to back the package.
The adopted plan includes a two-year increase in the retirement age from the current average of 65, as well as salary cuts and labor market reforms, including cuts to holiday benefits, notice periods and severance pay.
Workers fear this will just make it easier and cheaper for them to be fired at a time when unemployment has already soared to 25% and a five-year recession means there are few job prospects.
“Many of these measures are fair and should have been taken years ago, without anyone asking us to,” Antonis Samaras said.
“Others are unfair – cutting wages and salaries – and there is no point in dressing this up as something else,” the prime minister said, adding that Greece was, nevertheless, obliged to take the measures.
Antonis Samaras has said that without this money, which will be used largely to recapitalize the country’s banks, the country will be bankrupt by 15 November.
Earlier on Wednesday, tens of thousands of protesters held a rally in Syntagma Square – outside the parliament building in the heart of the capital.
The protesters chanted: “People – don’t bow your heads!”
Some in the crowd held giant flags of Greece, Portugal, Italy and Spain – four of the eurozone’s most heavily-indebted states.
The riot police – who sealed off parliament – later fired tear gas after the demonstrators attacked them with petrol bombs and flares.
Protests also took place in other big cities across Greece.
The Greek unions were staging what they described as the “mother of all strikes” – a 48-hour walkout which culminated on Wednesday.
The third major strike in just two months brought public transport to a halt and shut schools, banks and government buildings.
Measures in austerity package
- Retirement age up from 65 to 67
- A further round of pension cuts, of 5-15%
- Salary cuts, notably for police officers, soldiers, firefighters, professors, judges, justice officials; minimum wage also reduced
- Holiday benefits cut
- 35% cut to severance pay
- Redundancy notice reduced from six to four months.