Americans’ disposable income surged in January as the Trump tax cuts began flowing through paychecks, boosting the personal saving rate while consumers held back on spending, according to data released Friday by the Bureau of Economic Analysis.
Disposable personal income rose 0.9 percent in January, nearly triple the 0.3 percent gain recorded in December. The jump reflected a sharp drop in personal current taxes, which fell 3.2 percent — the largest monthly decline in the series in recent memory — as updated withholding tables incorporating the One Big Beautiful Bill Act took effect at the start of the year.
The tax cut legislation, signed by President Trump on July 4, 2025, introduced new deductions for tipped workers, overtime pay, car loan interest, and seniors. Those benefits began showing up in workers’ paychecks in January when employers applied new IRS withholding tables for 2026.
Personal saving rose to $1.05 trillion, and the personal saving rate climbed to 4.5 percent from 4.0 percent in each of the three preceding months. The increase suggests consumers banked much of their newfound after-tax income rather than spending it immediately.
Real personal consumption expenditures rose just 0.1 percent in January, matching December’s tepid gain. Goods spending fell in real terms, down 0.4 percent, led by a $29.3 billion drop in motor vehicles and parts. Services spending provided the only bright spot, rising 0.3 percent.
The inflation picture offered little comfort. The PCE price index rose 0.3 percent from December and was up 2.8 percent from a year earlier. Excluding food and energy, the core PCE price index rose 0.4 percent for the month and 3.1 percent from a year ago, a tick higher than December’s 3.0 percent year-over-year reading and well above the Federal Reserve’s 2 percent target.
Overall personal income rose 0.4 percent in January. Compensation increased $83.7 billion, led by a $71.2 billion gain in wages and salaries. A January cost-of-living adjustment also lifted Social Security benefits by $49.2 billion, though that was partly offset by a $16.7 billion decline in other government social benefits reflecting a drop in estimated Affordable Care Act enrollments.
The January report, originally scheduled for release on February 26, was delayed by the recent government shutdown.
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