MNI 5 THINGS: Expect US PCE To Be Soft; Core Prices +0.2%

--5 Things To Look For In US Feb 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 0.2% gain

in the core PCE price index, a 0.4% gain in personal income, and a 0.2% gain in

current dollar PCE.

     Ahead of the release, we outline five themes for particular attention.

- HISTORY OF MISSING PERSONAL INCOME

     The recent trend in analysts' forecasts points to little risk for core PCE

price index, however, personal income is likely to vary from the median

expectation. The core PCE price index is forecast to come in at 0.2%, with no

variation of forecasts amongst analysts, suggesting a greater likelihood of

coming in as expected. Personal income, on the other hand has been

underestimated five times, overestimated four times, and came in as expected

only four times since January 2017. The risk to the median expectation for

personal income is heightened given that the last four months have come in both

over and under expectations twice each. 

- PERSONAL INCOME TO SHOW CONTINUED STRENGTH

     Personal income is expected to again rise 0.4% month/month, which would

make it the eighth month of 0.3% or larger gains and the longest streak since

2014. Some analysts expect a more muted, albeit still strong, 0.3% gain due to

February's Nonfarm Payrolls Report showing year/year average hourly earnings

slipping to 2.6%. However, the 313,000 surge in nonfarm payrolls, coupled with

the overall average weekly earnings rising 0.4% month/month or 2.9% year/year,

implies the potential for another stronger gain in personal income - with a few

analysts even calling for a 0.6% print.  

- PERSONAL SPENDING TO SLOW AFTER STRONG 4Q

     Nominal personal spending is expected to continue January's soft reading,

but analysts are at odds for just how weak the figure will be - with forecasts

ranging between a decline of 0.1% and a gain of 0.3%. If nominal personal

spending comes in negative, this would be the first decline since January 2015.

The third estimate of 4Q GDP showed that personal consumption was up a strong

4.0%, even higher than previously thought. This upswing in 4Q GDP gives the

potential for December PCE to be revised higher, January PCE to be revised

lower, and February PCE to surprise to the downside, as consumers rein in

spending after reaching lofty levels. 

- WEAK ENERGY TO HIT SPENDING

     Posing potential threats to personal spending are utilities and gas

expenditures. Gas is expected to drag due to falling pump prices, as utility

usage may have moderated due to unseasonably warm February weather in most of

the country. The East Coast saw some of the earliest warm weather ever recorded

in the month, which should soften utilities spending. However, potentially

cushioning this blow, the West did see record breaking bitter cold temperatures,

which should keep utility usage in the region at more normal highs. The 0.1%

gain in CPI Energy, which tracks closely with PCE Energy Goods & Services,

suggests that energy overall should post a soft reading.

- CORE PCE PRICE INDEX Y/Y PICKING UP, BUT STILL SOFT

     The closely monitored core measure of PCE is unlikely to surprise with a

0.2% gain, coming in higher than the 2017 average of a 0.1% increase and,

combined with the 0.3% rise in January, suggesting 1Q is off to a good start. If

it is a strong 0.2% rise in the month, it could push the year/year up to 1.6%,

ending the four month string of the 1.5% year/year pace. But, before assuming

inflation is showing signs of acceleration, this rise to 1.6%, while stronger

than recent months, still falls below the 1.9% and 1.7% year/year pace in 2017

and 2016, respectively. 

--MNI Washington Bureau; +1 202-371-2121; email: holly.stokes@marketnews.com

--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com

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