January Personal Income And Spending (And PCE Inflation)

2025-02-28 10:55:00 ET

Summary

• Personal income jumped by 0.9 percent in January, while personal consumption expenditures fell by 0.2 percent (markets were looking for a small increase).
• At this point, it’s much too soon to say that a downturn is imminent.
• If the PCE figures in coming months suggest further weakness, we could see Fed easing by mid-year.
• The Fed is likely to keep policy unchanged for now, monitoring growth and inflation trends before deciding on tightening or easing.

Lots of income but not much spending in January – with inflation as expected.

Personal income jumped by 0.9 percent in January (about double expectations) while personal consumption expenditures (PCE) fell by 0.2 percent (markets were looking for a small increase). The weak retail sales report certainly suggested that the broader PCE measure would slow, but not by this much (with real PCE down at an annualized pace of 0.5 percent). Should we be concerned that these weaker spending numbers for January presage a significant slowdown in the economy (after all, the spread between the 3-month and 10-year Treasury note yields just inverted again in the past couple of days)?...

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