U.S. personal spending and income both grew in January despite severe winter weather, faring better than economic forecasts had estimated.

Personal consumption grew 0.4% in January compared to a revised 0.1% increase in December, the Commerce Department said. Economists surveyed by Dow Jones were only expecting a 0.1% increase for January.

The rise in consumption is due to the largest surge in spending on services since 2001, with many Americans dishing out more money on utilities to keep warm. Purchases of goods decreased.

“People spent a lot of money heating their homes and that showed in the numbers,” said Eugenio Aleman, senior economist at Wells Fargo Securities.

Stronger growth in health care spending because of the Affordable Care Act also contributed to the uptick in services consumption, the Commerce Department said.

Obamacare also helped boost U.S. personal income because of increases in Medicaid coverage and other social benefits. Personal income increased 0.3% in January compared with no growth in December, the Commerce Department said.

“There was a big jump in Medicaid. The states are charged with increasing coverage under Obamacare, and a lot of that started on the first of the year,” said Gary Schilling, president of economic consulting firm A. Gary Schilling & Company.

The start of the year also brought the first full month where more than one million of the long-term unemployed went without jobless benefits. This likely drew back overall spending and income figures.

Robert Dye, chief economist at Comerica Bank, said, “negatively, we see a little bit of drag from the expiration of long-term unemployment insurance.”

That lag was counteracted in part by cost-of-living adjustments to Social Security and pay raises for civilian and military personnel. According to the Commerce Department, those factors nudged up personal income.

Government money wasn’t the only reason for a rise in personal income. Wages and salaries increased in January following a decrease in December, helping to push the personal income numbers up.

Dye said the wage and salary increases played a significant role in personal income growth.

“They’re about 50% of income. It’s the biggest component of income,” he said.

As spending and income grew, prices remained soft. The price index for personal consumption expenditures, the Federal Reserve’s measure of inflation, increased 0.1% in January compared to a 0.2% increase in December, the Commerce Department said. It has grown 1.2% since last January, still not meeting the central bank’s ultimate target.

“That number is well below the Fed’s target of 2%. These numbers haven’t changed too much. As far as the Fed is concerned, we’re too close to deflation for comfort,” said Schilling.

Other indicators point to an improving economy. U.S. manufacturing growth expanded at a faster rate than forecast for January, the Institute for Supply Management said.

Economists are optimistic in anticipation of the employment report, which the Labor Department will release on Friday. Economists surveyed by Down Jones predict that employers added 152,000 jobs in February, up from 113,00 in January.

“February is starting to look a little bit better. Things are going to start to improve as we get out of the winter,” said Aleman.

Source: The Commerce Department