Consensus | Consensus Range | Actual | Previous | Revised | |
---|---|---|---|---|---|
Personal Income - M/M | 1.0% | 0.5% to 1.5% | 0.6% | 0.2% | 0.3% |
Personal Consumption Expenditures - M/M | 1.2% | 0.6% to 2.0% | 1.8% | -0.2% | -0.1% |
PCE Price Index - M/M | 0.4% | 0.3% to 0.6% | 0.6% | 0.1% | 0.2% |
PCE Price Index - Y/Y | 4.9% | 4.8% to 5.1% | 5.4% | 5.0% | 5.3% |
Core PCE Price Index - M/M | 0.4% | 0.3% to 0.5% | 0.6% | 0.3% | 0.4% |
Core PCE Price Index - Y/Y | 4.3% | 4.2% to 4.5% | 4.7% | 4.4% | 4.6% |
Highlights
Both the headline PCE price index and the core index, excluding food and energy, were up 0.6 percent on the month, not only representing an acceleration from the previous month, which was anticipated, but also exceeding expectations of 0.4 percent for both indexes. The picture was the same on a 12-month basis, with the main index rising 5.4 percent and the core index 4.7 percent, far above forecasts of 4.9 percent and 4.3 percent, respectively.
Prices for both goods and services appreciated 0.6 percent in January, with food up 0.4 percent and energy 2.0 percent. On a 12-month basis, consumers paid 11.1 percent more for food and 9.6 percent more for energy.
With their higher wages and salaries boosting compensation (0.9 percent), households spent both on goods and services. Expenditures on goods, up 2.8 percent from December, were widespread, led by motor vehicles and parts and pharmaceuticals. Spending on services, up 1.3 percent, was led by food services. Yet, in a fifth consecutive advance, the personal saving rate increased to 4.7 percent.
Despite higher-than-anticipated spending and inflation readings, Econoday Consensus Divergence Index remains within a zone consistent an economy evolving in line with expectations.
Market Consensus Before Announcement
Definition
Personal consumption expenditures are the major portion of personal outlays, which also include personal interest payments and transfer payments. Personal consumption expenditures are divided into durable goods, nondurable goods and services. These figures are the monthly analogues to the quarterly consumption expenditures in the GDP report, available in nominal and real (inflation-adjusted) dollars. Economic performance is more appropriately measured after the effects of inflation are removed.
Each month, the Bureau of Economic Analysis also compiles the personal consumption expenditure price index, also known as the PCE price index. This inflation index measures a basket of goods and services that is updated annually in contrast to the CPI, which measures a fixed basket.
Description
The consumption (outlays) part of this report is even more directly tied to the economy, which we know usually dictates how the markets perform. Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Investors can see how consumers are directing their spending, whether they are buying durable goods, nondurable goods or services. Needless to say, that's a big advantage for investors who determine which companies' shares they will buy.
The PCE price indexes have gained importance since the Fed announced a medium-term inflation goal of 2 percent based on the headline number on a year-on-year basis. The Fed forecasts inflation for both the headline PCE price index and the core rate (excluding food and energy).
Importance
Income is the major determinant of spending -- U.S. consumers spend roughly 95 cents of each new dollar. Consumer spending accounts directly for more than two-thirds of overall economic activity and indirectly influences capital spending, inventory investment and imports.
Interpretation
Increases (decreases) in income and consumption cause bond prices to fall (rally). As long as spending isn't inflationary, the stock market benefits because greater spending spurs corporate profits. Financial market participants pay somewhat less attention to personal consumption expenditures than to retail sales, which are released earlier in the month. However, they do closely monitor personal income and the PCE deflator.
Changes in personal income signal changes in consumer spending. For instance, a period of rapid income growth may signal future gains in personal consumption expenditures as well. Conversely, a period of declining income growth could signal an impending recession. While consumers often still must purchase necessities, discretionary purchases may decline, or moderate.
Consumers are more likely to increase spending when they see their stock portfolios increase in tandem with the stock market. When the stock market falls, spending is likely to decline because consumers feel less wealthy. Home prices and home equity have similar effects. Rising home prices boost the amount of equity consumers have in their homes. This allows access to Home Equity Line of Credit (HELOC) accounts. Plus consumers feel wealthier whether they have a HELOC account or not. When home prices decline, home equity falls and cuts into consumer spending.
Personal income is a comprehensive figure, but also incorporates taxes consumers must pay. By removing personal tax payments from personal income, we are left with disposable income. This is what consumers have left to spend on goods and services. Adjusting for inflation reveals growth in real disposable income.
On the inflation front, if PCE inflation is running below the Fed's goal of 2 percent inflation, that is seen as favorable toward Fed ease or neutral monetary policy. PCE inflation above 2 percent suggests that the Fed might be more inclined to raise policy rates.