NEW YORK (CNNMoney) -- Americans earned more than expected in January, thanks to tax changes that boosted income, but consumers chose to add more to their savings at the start of year.
Personal income surged 1% in January, following a 0.4% increase in December, according to data released Monday by the Commerce Department. Economists surveyed by Briefing.com were predicting a modest increase of just 0.3% in the month.
But consumers chose to stash the extra cash, rather than spend it. Americans saved $677.1 billion during the first month of the year, compared with $620.9 billion the prior month. And personal savings as a percentage of disposable income rose to 5.8% from 5.4% in December.
Meanwhile, spending by individuals ticked up just 0.2%, compared to a 0.5% increase the prior month. Economists were expecting an increase of 0.4% in January.
"Consumers remain in a very cautious mood," said Mark Vitner, senior economist at Wells Fargo. "They went out and splurged during the holiday season, but they're not in the mood to do that again. In order to see spending grow faster than income, the economy needs stronger job growth."
Income was lifted by a reduction in employee social security contributions, which was part of the payroll tax cut passed by lawmakers in late 2010, as well as the expiration of the Making Work Pay tax provisions, rather than higher salaries and wages.
In fact, private sector wage and salaries increased by $14.8 billion, or 0.3% last month, compared to a 0.4% rise in December.
While the tax change was fully reflected in the January personal income figure, Americans will continue to see the extra cash in their weekly paychecks throughout the year, said Vitner.
"Workers didn't get all the gains for the year in their first paycheck," Vitner said. "Plus, evidence shows that consumers don't alter their behavior according to temporary tax changes."
Excluding the tax factors, income increased just 0.1% during the month, the government said.
The new Blazer will go on sale next year. More
OPEC members are meeting Friday in Vienna to consider a potential production increase that would please its customers and help ease prices. More
Russian trolls posing as an American college student tweeted about divisive social, political and cultural issues using an account that amassed thousands of followers -- and appeared in dozens of news stories published by major media outlets -- as recently as March. More
In 1998, Ntsiki Biyela won a scholarship to study wine making. Now she's about to launch her own brand. More
Thinking of splashing out a lot of money on fancy new car or dream vacation? Ask yourself these six questions to avoid financial chaos. More