MNI 5 THINGS: US Core PCE Prices Seen +0.2%; No Forecast Risk

     WASHINGTON (MNI) - The US Personal Income and Outlays report for November

will be released on Friday, with the median forecast among analysts in an MNI

survey calling for a 0.2% rise in the core PCE price index, a 0.3% gain in

personal income and a rise of 0.4% in current dollar PCE.

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

     --NO CORE PCE PRICES FORECAST RISK 

     This month, analysts have forecast a 0.2% increase in the core PCE price

index. Based on their history of estimating this value, there is no clear risk

to this month's estimate. Over the last year, analysts' estimates have been on

target seven times. They have overestimated three times and underestimated just

twice. A miss in either direction averages only 0.1pp, indicating that a

potential miss this month would be relatively small. However, given their track

record of accurately predicting core prices, this month's report should not

contain any surprises.

     --ENERGY CPI DOWNSIDE RISK 

     The November Consumer Price Index for energy, which is an extremely strong

correlate of the PCE Price Index for Energy Services, posted a 2.2% decline,

posing a downside risk for headline PCE Prices. Month-over-month percentage

changes in the two price indices have matched each other almost perfectly for

the past year, making the CPI for energy a useful predictor of the PCE Price

Index for Energy Services, and headline PCE prices by proxy.

     --CORE PCE PRICES SOME UPSIDE

     The core Consumer Price Index, which tends to accelerate at a pace similar

to the core PCE Price Index, posted a 0.2% gain in November, which points to

some upside risk for core PCE prices and corroborating analyst estimates.

However, the relationship between the indices is not particularly robust - they

sometimes move in opposite directions, the last such instance being October of

this year. Nonetheless, given that analysts are forecasting for a percentage

gain the exact same size as that seen for the core CPI, it would be reasonable

to expect a gain for core PCE that is at least similar

     --RETAIL DATA LIFT PCE 

     The advanced monthly retail sales report released earlier this month

indicated that the value of sales in the US increased by 0.2%, both including

and excluding motor vehicles and parts in November, supporting analyst estimates

for a gain in personal consumption expenditures. Additionally, the underlying

trend was far stronger, with a 0.9% gain excluding motor vehicles, gasoline

stations, food services, and building materials, further supporting the analyst

estimate.

     --MORE MODEST INCOME GROWTH

     Analysts are expecting personal income to rise by just 0.3% in November

after a larger 0.5% increase in October. November's more modest employment

report showed that payrolls rose by 155,000 after a 237,000 increase in the

previous month, while average hourly earnings rose by 0.2%, and average weekly

hours fell from 34.4 from 34.5. The steady, but smaller, rise in payrolls and

slightly faster average hourly earnings growth support analysts' estimate for

this month's continued personal income growth.

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

--MNI Washington Bureau; +1 (973) 494-2611; email: harrison.clarke@marketnews.com

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