US consumers keep a lid on spending despite rising incomes
US consumers kept a lid on spending in January, despite the improving economic fundamentals of the US economy and the better conditions of the jobs market.
Personal spending in the US dropped 0.2% in January, better than the 0.3% decline registered in December but lower than the 0.1% dip expected by economists.
Consumer spending is the single biggest source of US economic growth, accounting for as much as two-thirds of economic activity. The decline in spending came as personal income rose 0.3% in January, matching December but a slightly lower result than the 0.4% increase estimated by economists.
Wage and salary growth rose 0.6% in January, while growth in disposable income was 0.4%. The saving rate ticked higher, to 5.5%, up from 5.0% in December, and stands at its highest level since late 2012.
The core PCE price index rose to 0.1% in January, in line with expectations after holding steady in December. The index rose at an annualised rate of 1.3%, above estimates for 1.2%, after increasing at a rate of 1.3% in December.
Importantly, the Federal Reserve uses core PCE as a gauge to determine whether to increase or decrease interest rates, with the aim of keeping inflation at a rate of 2% or below. Monday’s data is likely to be viewed as another reason by the Fed to stay pat on rate hikes just yet as the PCE indicator suggests inflation remains benign.
On the breakdown of the data, Michael Gapen, economist at Barclays was particularly enthused by the trend in real disposable income. “The trends in real disposable income and a higher saving rate suggest households have positive momentum in the first quarter of 2015,” he said.
Gapen views Monday’s data as indicating that households are still receiving a boost from falling energy prices. “We expect the support for income and spending from lower energy prices to continue to dissipate in the months ahead,” he added.
In equity markets, US stock markets kicked off the session in the black though indices were broadly range-bound.
In FX markets, the US dollar index, which tracks the greenback against a basket of six major rivals, was at 95.22, compared to 95.16.
In the commodities market, gold futures traded at $1,215.30 a troy ounce, compared to $1,217.50, while crude oil traded at $49.06 a barrel from $49.14 earlier.
In bond markets, the 10-year US Treasury yield ticked up slightly to 2.026%, up 2.4 basis points while the two-year yield moved up 1.6 basis points to 0.642%.