The U.S. Commerce Department today released data on personal income and expenses for January.

Personal income rose 0.3% in the first month of 2014, driving a 0.4% increase in disposable income. Consumer expenses also rose 0.4%, in lockstep with disposable dollars.

This is mildly good news. Both disposable income and consumer spending are growing faster than their four-year monthly averages. Data from the St. Louis Federal Reserve Bank show inflation-adjusted disposable income gaining 0.15% in an average month, while adjusted consumer spending generally grows 0.2% a month.

Fredgraph Income Expenses

Source: St. Louis Fed's FRED service.

But it's not all rainbows and unicorns, because the January numbers were boosted by some very unusual events.

A bitterly cold winter forced millions of Americans to pay more on heating bills, adding some artificial strength to the spending stats.

The income box also had several rare factors pulling on it, in every direction:

  • This was the first month for many of the Affordable Care Act, or Obamacare, provisions to take effect. That's a growth driver for personal income since health care benefits count under the "income" heading.

  • January is special because it's the month in which many corporations and the U.S. military execute annual pay raises.

  • On the other hand, federal Emergency Unemployment Compensation expired on Jan. 1, thus reducing income for many jobless consumers.

  • December's personal income data was also unusually strong thanks to lump-sum Social Security payouts, giving January a higher bar to clear.

Excluding all of these special events, personal income only increased in line with the 0.2% long-term average.

At the end of the day, Americans held on to 4.3% of disposable income in January, the same rate as December. These are the 540 billion consumer dollars that were not spent on anything, but are going into savings accounts, buried coffee cans, and long-term investments.

Fredgraph Savings

Source: St. Louis Fed's FRED service.

Investing your leftover cash in the stock market is far healthier than simply sticking your savings in a sock drawer. Sure, stocks can lose value from time to time, but the market bounces back stronger after every crash.

The Dow Jones Industrial Average (DJINDICES:^DJI) has quadrupled in value over the last 20 years, including the 2001 dot-com crash and the 2008 mortgage meltdown. At the same time, inflation-adjusted disposable income only grew by 85%.

^DJI Chart

^DJI data by YCharts.

Investing a little bit every month will beat coffee cans and savings accounts in the long run. Are you in the market yet?

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