MNI 5 THINGS:US Core Prices Seen +0.1%; No Clear Forecast Risk

By Harrison Clarke, Shikha Dave, and Sara Haire

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

be released Tuesday, with the median forecast among analysts in an MNI survey

calling for a 0.1% rise in the core PCE price index, and a 0.4% gain in personal

income and a rise of 0.5% in current dollar PCE.

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

--NO CLEAR FORECAST RISK

     Analysts are expecting the core prices to rise 0.1% month/month in June.

However, in the last year, analysts have underestimated the core PCE price index

four times and overestimated it three times, suggesting that there may be only a

slight upside risk to analysts' estimate of 0.1%. When they do miss, analysts'

underestimates have been by an average of 0.1pp while their overestimates have

been by an average of 0.2pp.

--CONDITIONS FAVOR PERSONAL INCOME

     Based on an MNI survey of analysts, personal income is expected to increase

by 0.4% month/month in June. Following the steady increase in nonfarm payrolls

over the last two months, as well as a 0.2% increase in average hourly earnings

in June's employment report, labor market conditions have been strong. This

suggests that personal income should increase on target with analysts'

expectations. Additionally, Friday's GDP report indicated a 4.5% increase in

disposable personal income in the second quarter, further supporting the 0.4%

expected increase.

--SOFT PRICE GAINS FAVOR REAL PCE

     Nominal personal consumption expenditures, also known as consumer spending,

is expected to bounce back in June after May posted a softer than expected rise

of 0.2%. Real personal consumption expenditures are also expected to rise

substantially as analysts expect a smaller 0.1% increase in the PCE Price Index

following a 0.2% increase in May. A soft June CPI increase of 0.1% and a decent

0.3% increase in June retail sales ex. motor vehicles and gas both corroborate

the idea that soft inflation through the month could have led to stronger real

expenditures in June.

--SAVINGS RATE LIFTED BY REVISIONS

     Friday's GDP report had annual revisions that included especially

noteworthy upward revisions to the personal savings rate, revealing that

consumers have been saving more of their income than previously thought. These

revisions were driven by upward adjustments to income, rather than consumption.

This signals that consumers have been more cautious with their extra income than

indicated over the past few years, but it also suggests that consumers have had

a higher level of disposable income over the same period. This should ease

concerns over the sustainability of increasing consumer spending relative to

disposable income. As consumer confidence continues from a 17-year high in May

and a slight decline in June, consumers may start to spend more in the coming

months as financial conditions remain loose.

--ENERGY TO DRAG PCE PRICES

     The headline PCE index is expected to rise 0.1% month/month, bringing the

year/year up to a 2.3% gain, with energy prices a drag for the month of June.

The June CPI report showed energy declined 0.3% in the month, which could

translate into a month/month decline for the PCE price index energy goods and

services. This decline in CPI energy, and potential decline the PCE energy goods

and services price index would be weaker than in previous months, with both PCE

price index energy and CPI energy rising 0.9% in May and 1.5% and 1.4% in April,

respectively. Therefore, the year/year rate is expected to receive only a slight

boost this month as energy prices resume their downward trend.

--MNI Washington Bureau; +1 202-372-2121; email: shikha.dave@marketnews.com

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

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

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