U.S. Personal Income & Spending (January 2026)

Consumer Spending Started 2026 on Softer Footing 

• Personal income rose by 0.4% month-over-month (m/m) in January, a touch below market expectations for a 0.5% gain. After adjusting for taxes and transfers, disposable income advanced strongly in January (+0.9%), reflecting a jump in social security benefits due to the annual cost-of-living adjustment. 
• Consumer spending advanced by 0.4% month-over-month in nominal terms, on par with December's pace. Most of the gain, however, was due to higher prices: real spending rose by just 0.1% m/m. 
• Examining the broad categories, spending on goods declined for the second consecutive month (-0.4% m/m) in real terms, weighed down by reduced spending on cars and parts and on recreational goods and vehicles. Spending on services rose by 0.3% m/m, supported by higher outlays on housing and utilities, financial services, and healthcare. 
• With disposable income outpacing spending, the personal saving rate jumped to 4.5% from the upwardly revised 4% in December. This marks the first monthly increase in the savings rate since April 2025. 
• Inflation remains persistently above the Fed's 2% target. Core PCE – the Fed's preferred inflation gauge – rose by 0.4% in January, on par with December's gain. In annual terms, core PCE inflation was up 3.1% year-over-year, up slightly from 3.0% pace seen in December.

Key Implications

• This morning's second release of Q4 GDP suggested that consumer spending momentum was slightly slower at the end of last year, with Q4 growth revised down to 2% (annualized) from the previously reported 2.4%. January's data indicates that spending continued to advance at a moderate pace at the start of this year, edging only slightly higher in January. Some of this softness can be attributed to severe winter weather experienced across many states at the end of January. The recent sharp spike in gasoline prices, driven by the U.S.–Iran conflict, could further dampen consumer confidence and spending in March. Overall, given the sluggish start to 2026 and the increase in gasoline prices in March, we anticipate that growth will remain moderate at around 2% in Q1. 
• Looking ahead to Q2, households are expected to benefit from OBBBA-related fiscal measures, including higher tax refunds and lower income taxes. However, downside risks to the outlook have increased in recent weeks. If elevated gas prices persist, they will weigh on consumer sentiment and spending—particularly as households continue to grapple with cost-of-living pressures. Higher oil prices are also expected to drive broader inflation and could keep interest rates elevated, with the recent rise in 10-Year Treasury yields threatening to undermine the emerging recovery in the housing market.