MNI: 5 Things To Look For: US Personal Income Data

By Sara Haire and Holly Stokes

     WASHINGTON (MNI) - The US personal income report will be released Monday,

with the median forecast among analysts in an MNI survey expecting a 0.3% gain

in personal income, a 0.4% rise in current dollar PCE, and a 0.2% increase in

core PCE price index.

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

     -- REVISIONS ON THE HORIZON?

     The advance release for 4Q GDP was released Friday and PCE rose 3.8%,

contributing 2.58pp to 4Q GDP vs 1.49pp in 3Q. The PCE price index saw a 2.8%

rise vs 1.5% in the previous quarter, while core PCE price index rose 1.9% vs

1.3%. Some analysts note that December's release should hold little surprise, as

they deduce it from the 4Q GDP report and the prior two months' personal income

reports. However, December PCE could hold some uncertainty due to the recent

history of revisions in December for past months. The PCE price index m/m was

revised up in the past two Novembers. This indicates December forecasts could

face a small downside risk. 

     -- ANOTHER BOOST FROM MOTOR VEHICLES 

     In November, vehicle sales were one of the largest contributors to the

$22.3 billion in spending on goods. The December retail sales report, which

feeds into the personal income report, showed that motor vehicle and parts

increased by 0.2%, suggesting that motor vehicle sales will again provide a

boost to goods consumption. 

     -- ENERGY COULD DRAG

     While last month, energy jumped 4.3% and provided a considerable boost to

PCE's 0.2% rise, it is unlikely to give any lift in December. Given the strong

correlation between SA monthly percent changes of CPI energy and PCE energy, and

December CPI energy posting a 1.2% decline, PCE energy may likely come in

negative as well. It is worth noting that many analysts expect utilities to jump

on cold December weather as suggested by the CPI data, but this will likely be

offset by the decline in gas prices seen in both the CPI and retail sales

report.

     -- CONCERNS OF LOW SAVINGS RATE 

     After reaching its lowest level since 2007, the savings rate will likely

continue its downward trend. There has been a recent negative relationship

between average hourly earnings and personal savings, highlighting a potentially

disproportionate rate of spending to income growth. In this light, December's

0.3% gain in hourly earnings suggests that the savings rate could continue to

slip to new lows. This, in conjunction with the widening gap between the savings

rate and revolving credit to pre-recession levels, may worry policymakers about

unsustainable spending relative to income growth. 

     -- ON TARGET FED PROJECTION 

     The Federal Reserve's economic projections released on a quarterly basis

includes their preferred measure of inflation, the core PCE Index Y/Y. In 2015

and 2016, core PCE began to rise and the Fed expected the trend to continue into

2017, prompting a shift in March, setting core PCE expectations for 2017 to

reach 1.9%. As time progressed, the Fed recognized that inflation was not rising

as quickly as it had the year prior. This led them to announce a series of

lowered expectations for 2017. With the core PCE m/m expected to rise 0.2%, this

will keep the Y/Y at 1.5% for December, making the Y/Y match the Fed's most

recent projection for the 2017 year, barring no revision to the personal income

data in the coming months. 

--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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