Personal Income And Spending Jump

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 benefitting 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.

Recent History Of This Indicator:
The core PCE price index is the Fed's favorite inflation reading and, based on the sharp rise in core consumer prices, is expected to increase a solid 0.2 percent in January. Readings on personal income and personal spending are also expected to post solid gains, at plus 0.4 percent for income, reflecting gains in wage and workweek data in the January employment report, and at plus 0.3 percent for spending reflecting what is expected to be incremental gains for service spending and in line with gains for core retail sales in January.