Announced this morning, Personal Income grew 0.6% in January, less than expected but still higher than the previous month’s increase. Personal Spending increased 1.8% in January, more than expected and a large rebound from the previous month. Real Personal Spending which accounts for inflation grew 1.1% in January as expected. Meanwhile, the personal savings rate as a percentage of disposable income was 4.7%, an increase from previous levels.
Looking at inflation, the PCE Deflator grew 0.6% in January more than expected and a sizeable increase from the previous month. It grew 5.4% on an annual basis. The Core PCE Deflator, which excludes food and energy prices, also increased 0.6% in January higher than the previous month and grew 4.7% on an annual basis.
Overall, a mixed report as both income and spending rebounded in January, but inflation figures stopped their downward trend. Despite slowing at the end of 2022, consumers revived their spending at the start of the year. Meanwhile, core inflation figures have slowed their decline and even showed increases in January. Given this data, the Federal Reserve will likely remain steadfast in keeping rates higher for even longer to ensure inflation resumes its downward trend. The magnitude and pace at which these efforts affect the labor market and the economy will be key for markets in the weeks ahead.
In all, the 10-year US Treasury yield is higher and equity futures are lower as we head into the market open.
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