Americans saw more money in their pockets in January, but did not spend as much of it as expected, according to government data released Friday.

Inflation meanwhile remains tepid, staying well below the Federal Reserve's two percent target.

However, the Commerce Department data refers to the period before the intensification of the coronavirus outbreak, which has sent global markets plunging amid fears of widespread economic disruption.

The January data showed income rose 0.6 percent, far higher than economists expected and a big jump from December's 0.1 percent gain.

However, personal consumption expenditures (PCE) in the month were slower than expected, rising just 0.2 percent, half the increase of the prior month.

The PCE price index edged up 0.1 percent, and the same as the "core" gauge that excludes volatile food and energy goods.

"Amid rising uncertainty, consumers displayed more cautious spending at the start of the year. Still solid wage growth, hefty savings and elevated confidence only underpinned tepid outlays," Oxford Economics said in a note.

The global spread of the coronavirus from China has already rocked global markets and could cut into both US income growth and spending
The global spread of the coronavirus from China has already rocked global markets and could cut into both US income growth and spending AFP / GREG BAKER

The data also shows the Fed once again falling short of its 2.0 percent target for inflation, with inflation up 1.7 percent from January 2019 and up 1.6 percent when food and energy are excluded.

"This persistent inflation undershoot reinforces the Fed's dovish bias and bolsters the case for a Fed rate cut as soon as March given the sharp tightening in financial conditions," Oxford Economics wrote.

Hanging over the results is the COVID-19 outbreak, which Ian Shepherdson of Pantheon Macroeconomics said could cut into both spending and income.

The virus has killed more than 2,800 people and infected over 83,000 worldwide -- the vast majority in China -- since it emerged apparently from an animal market in a central Chinese city in late December.

"Spending is better than it looks, but sustainability depends on the US not suffering a major coronavirus outbreak," Shepherdson said, calling Friday's data "more old news, before the coronavirus."

He predicts income growth could "take something of a hit over the next few months... due to coronavirus fears."

Coronavirus China