Personal income data shows the US economy on track
Yesterday’s release of the Personal Income and Outlays data showed personal income increasing 0.4% in January, ahead of expectations. The numbers demonstrate that the US economy continues to expand at a solid if unspectacular pace.
Most commentators focused on the 1.9% year’s increase in the data series’ inflation figure – the PCE price index. And that’s because this figure is the one the Fed uses to decide whether inflation is hitting its target 2.0% level. Inflation is now close to target after being below target for five years.
Even excluding the volatile food and energy components, the core price index is now up 1.7% year-on-year.
Why it matters: The inflation aspect matters because it makes the likelihood of rate hikes more palpable, with more and more market participants now expecting a March rate hike. This is particularly true after hawkish comments from NY Fed President Dudley yesterday.
But we should also look at income and consumption because these figures show double-barrelled support for the US economy from the consumer side. Personal disposable income growth is ebbing.
But so too is real personal consumption expenditure growth. The consumption numbers are increasing at a faster rate.
But once you factor in inflation, expenditure growth is ever so slightly falling.
And this decline in personal consumption growth is the challenge for continued growth in the US economy with the Fed set to hike rates.
Source: St. Louis Fed