Today’s Personal Income and Outlays report shows personal income and consumer spending both rose by 0.5%.
The same report shows year-over-year core PCE (Personal Consumption Expenditures), the Fed’s preferred measure of inflation, jumped to 1.7% from 1.4%.
Bloomberg Econoday says a March rate hike “may be a serious topic of discussion” as a result of the report.
Highlights
There’s plenty of life in the consumer. Personal income jumped 0.5 percent in January as did consumer spending, both readings higher than expected. Also higher than expected are the report’s inflation readings especially the core PCE which rose 0.3 percent for a year-on-year plus 1.7 percent.
Details are solidly positive with components on the income side led by wages & salaries, up a very strong 0.6 percent for the third large gain of the last four months. And consumers didn’t draw from savings on their January shopping spree, with the savings rate unchanged at a very solid 5.2 percent.
Components on the spending side are led by durable goods which jumped 1.2 percent and reflect strong vehicle sales in the month. Spending on services rose 0.6 percent in the month.
But the big story of the report is the core PCE, especially the year-on-year rate which is up from 1.4 percent to 1.7 percent and is pointing confidently toward the Fed’s 2 percent line. Total prices, which include food and energy, rose only 1 percent but the year-on-year rate for this reading has been on a tear, moving from about zero late last year to plus 1.3 percent in January.
Economic news outside of the consumer has been soft but today’s report is a reminder that the nation’s most important supporter is alert and in the driver’s seat. A strong consumer, who is benefiting from a strong labor market, together with the upward pivot for inflation will not make policy makers comfortable at next month’s FOMC where a rate hike, though long dismissed, may be a serious topic of discussion.
March Rate Hike?
I scoff at the prospects of a March rate hike. So does the Fed Fund futures.
The Fed does not go against the market view except with surprise cuts, never surprise hikes.
The market expectation for a Fed hike in March is 8.3%. This is an easy call: The Fed will not hike in March. I doubt the Fed hikes this year.
Mike “Mish” Shedlock
Mission Accomplished: STAGFLATION has been achieved! Time to raise interest rates as we enter a recession, job well done Fed!
Rents have been rising, I suspect the housing calculation is starting to jack up the inflation numbers , the owners equivalent housing cost calculation is totally hokey, maybe they’ll just change that part of the calculation to reduce calculated inflation to avoid more rate increases and save the US from paying COLA to employees and Soc Sec leeches.
The statistics are already understated. I am sure the real rates are more than 3 or 4%. Inflation is rampant in rent, taxes, healthcare and food. All the things one needs to survive. And they wonder where the consumer is spending their oil price windfall.
Yes, Michael, I’m quite sure this will be spun to show consumer confidence.
But contrary to being a consumer confidence factor, I would say it is spending on those things we MUST pay for as you listed.
“Components on the spending side are led by durable goods which jumped 1.2 percent and reflect strong vehicle sales in the month. Spending on services rose 0.6 percent in the month.”
I doubt the above comparison. Car sales are largely a new mortgage bubble growing with up to 8 years to pay… think how much easier it is to stop a car payment than a house.
I know both my wife’s and my supplemental health insurance is up 8% and 12% respectively and our homeowner’s and auto policies are also up. I assume Obamacare is also making a like move.
It is no wonder Trump and Sanders look good to millions of part time or temp workers.
The light at end of the tunnel … a train?
With S&P500 Q4 earnings about to decline (yoy) for third quarter in a row … and drop in Q4 productivity:
“Unit labor costs in the nonfarm business sector increased 4.5 percent in the
fourth quarter of 2015, reflecting a 1.3-percent increase in hourly
compensation and a 3.0-percent decrease in productivity.”
http://www.bls.gov/news.release/prod2.nr0.htm
How long till business cuts back on labor/wage to protect bottom line?
Retail is cutting big time already due to online sales and healthcare costs. Walmart. Sears, Kohls, etc.
Three people have been let go this year at the small printing firm where our son works. He is now part time, but he has his own health insurance, which I hope will protect his position.
combine this with the drop in value of global trade and corporate profits stated in US dollars are going to be down 15% this year – STAGFLATION indeed
Perhaps Americans can go on a consumption strike to protest what passes as a government financial system.
If there is way to massage data the government bureaucrats will use it. Seasonal adjustment and outright falsehoods later corrected are the two favorites. Government data has no credibility. In this case the Federal Reserve is on a mission to raise interest rates four times this year. Their ends justify their means.
Just spending more because of the anticipated tax refund. Happens every year. Mish I have a request now the government has released its financials. Can you comment on the assets please I am a tad confused. I have been here a long time and follow you daily I was GCTIII.
I just do not get how student loans is an asset and not a liability. That a lot of money wow I was floored. 1.4 trillion in student loans. I feel sorry for those people. Am I reading this wrongly?
Obama’s Ed Chief: $1.4 Trillion In Student Debt Isn’t That Big Of A Deal
http://www.huffingtonpost.com/entry/arne-duncan-student-debt_us_55b69595e4b0224d88335e1a
Have you ever heard of a bureaucrat who declared bankruptcy?
We have evolved into a Soviet style, top-down system. They left the field, but we lost the Cold War by default.
We now have several generations of people who have never worked and neither has anyone in their family. I guess we also lost the War On Poverty while we were looking the other way.