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

     WASHINGTON (MNI) - The US Personal Income and Outlays for December 2018 and

Personal Income for January 2019 report will be released on Friday. It will

include both December and January data for personal income, but the nominal and

real PCE, as well as price indices, will all be presented for December only.

     The median forecast among analysts in an MNI survey calls for a 0.2 rise in

the core PCE price index and a 0.3% gain in personal income. Analysts are

expecting a 0.1% decline in current dollar PCE while the Bloomberg consensus is

calling for a 0.2% decline. Both estimates are driven by the 1.7% decline in

December control group retail sales.

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

--CORE PRICES WELL FORECASTED

     Over the last year, analysts in an MNI survey have been on target eight

times. Their four misses, averaging just 0.1pp, are an even split between

overestimates and underestimates. Based on this history, it is likely that

analysts' forecast for a 0.2% gain in core PCE will be correct, and if they do

happen to miss, it will be by a very small amount.

--ONLY JANUARY INCOME

     Due to the interruption of the Department of Commerce's data gathering

caused by the government shutdown in January, only income data will be on

schedule. All other included data will be for December only. The tentative

release date for the rest of the January data is March 1st, but it is not clear

whether that report will include February data as well, or if the February data

will also be delayed. January retail sales, which could provide some clues as to

how the personal expenditure indicators fared in January, is scheduled to be

released on March 11.

--PCE PRICES HIT BY ENERGY

     In December, the Consumer Price Index for energy, which correlates well

with the PCE price index for energy services, posted a 2.6% decline. Because

these two indicators tend to move in the same direction, this poses a downside

risk for headline PCE prices. Though these indices typically match each other

quite well, in the last few months of 2018, they matched almost perfectly,

suggesting that CPI energy will be a useful predictor for the PCE price index in

December

--SOLID PAYROLLS IMPACT

     Due to a backlog of data, December personal income data will be released

alongside January's data. Analysts are expecting personal income to rise by 0.3%

in January after a predicted 0.4% gain in December. December's employment

report, which included a private payrolls gain of 206,000, a 0.4% increase in

average hourly earnings, and an uptick in average weekly hours from 34.4 to

34.5, is a strong positive for wages and salaries growth in December. Average

hourly earnings, rising just 0.1% in January's employment report, point to

slightly stronger wage and salary growth in January. Combined with a private

payrolls surge of 296,000 and no change in hours worked, this suggests analysts'

0.3% forecast for personal income growth is in line with January's employment

report.

--DECEMBER RETAIL SALES IMPACT

     The very weak retail sales data in December suggest a decline for nominal

PCE. Although retail sales is not the only determinant of the PCE number, the

two series are notably correlated. Falling energy prices were partially

responsible for the weak December sales report, but most other categories also

declined sharply. Analysts do differ on the impact of the sales data on PCE,

with an unusually wide range indicating that someone will be surprised.

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

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