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Repeats Story Initially Transmitted at 20:10 GMT Feb 28/15:10 EST Feb 28
5 Things To Look For In US Jan Personal Income Report
By Sara Haire and Holly Stokes
WASHINGTON (MNI) - The Personal Income report will be released Thursday,
with the median forecast among analysts in an MNI survey calling for a 0.3% gain
in core PCE price index, a 0.3% gain in personal income, and a 0.2% gain in
current dollar PCE.
Ahead of the release, we outline five themes for particular attention.
--LOW RISK OF SURPRISE FOR CORE PCE PRICE INDEX, HIGHER FOR PERSONAL INCOME
MNI calculations and recent historical data show that the core PCE price
index should hold little surprise, with analysts' median estimates only missing
twice in the last year. Both of these misses were by a small 0.1% and in
different directions, showing no clear risk to the expected 0.3% gain. However,
analysts' personal income track record is less exact. In the past 12 months,
analysts have underestimated and overestimated four times each. While these
misses are generally only by 0.1%, they have overestimated by as much as 0.4% --
suggesting a potential downside risk to personal income.
--STRONG CORE PCE PRICE INDEX M/M, BUT STABLE Y/Y
Based on January's CPI and PPI reports, the core PCE price index is
expected to post a 0.3% m/m gain, which would be the largest monthly gain since
January 2017. Given that core CPI's 0.3% m/m gain led to stock volatility and
sell-offs, a similar print for the core PCE price index could yield some market
anxieties, but participants seem to be largely unfazed by the current
expectation. Additionally, due to negative base effects, a 0.3% monthly gain
would result in the y/y holding steady at 1.5% or ticking up to a still soft
1.6%, which should help further ease concerns of overheating. This stability is
likely as core PCE y/y and core CPI y/y generally follow the same trend.
--SHIFTING EXPECTATIONS FOR RATE HIKES
While January's y/y core PCE price index would still land well below the
Fed's 2.0% target, recent monthly inflation data suggest an upward trend. As
negative base effects from early last year start to roll out, a continued trend
of upward inflation should yield a print much closer to target. A continued nod
of inflationary strength could be grounds for FOMC participants to re-evaluate
their projected rate path at the March meeting, as Chairman Powell pointed out
in his testimony before the House on Tuesday. Further, as inflation data
continues to heat up, markets are beginning to price in four rate hikes, and if
this continues to spike, markets will start moving past four hikes and begin
pricing in either five rate hikes or hikes that are more than a quarter basis
--CONFLICTING EMPLOYMENT DATA GIVES RISK TO PERSONAL INCOME
Analysts' forecasts for personal income vary greatly, ranging from a 0.1%
decline to a 0.5% gain, due to to conflicting data released in the January
Nonfarm Payrolls Report. In January, average hourly earnings (AHE) rose by 0.3%
m/m, making the y/y pace the largest increase in eight years. Personal income's
y/y rate has been following AHE y/y steadily in recent months. This, and 18
states raising minimum wage, make many analysts hopeful that personal income
will surge. However, January also saw a 0.6% m/m fall in the average workweek,
mitigating some of the strength in wage gains. The last time that the average
workweek shrank by 0.6% was in April 2013, when average hourly earnings also
rose by 0.3% m/m, which only led to a 0.1% m/m increase in personal income. If
the upcoming report follows suit, this would be the softest personal income
print since June 2017. While the market's reaction could be muted due to the
impending Powell testimony, a downside surprise could push Treasury futures to
pick up from the midweek selloff, while yields could fall in a "risk-off" move.
Equities have been acting unpredictably recently, but this would potentially
push them to firm.
--PERSONAL SPENDING COULD SURPRISE
While most forecasts call for current dollar PCE, or personal spending, to
come in on the low side due to January's unexpected decline in retail sales,
there could be an upside risk. Medical services and commodities in the CPI
report saw continued increases likely due to the aggressive flu season.
Government transaction receipts, specifically Social Security expenditures are
also likely to have picked up in January, adding to personal income, but also
consumption. These positive factors could translate into a higher level of
personal spending, while also pushing up core PCE inflation, especially since
hospital services account for 7.8% of consumption compared to the smaller 2.2%
they make up in CPI, as noted by Capital Economics. However, if personal
spending comes in soft, the savings rate may see a bounce back from the 2.4%
rate in December, which was the lowest since November 2005. Reaffirming this is
the upward revision to the savings rate in the 4th quarter GDP report released
Wednesday. Even so, the savings rate remains well below its year ago level of
--MNI Washington Bureau; +1 202-371-2121; email: email@example.com
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