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

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

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

survey calling for a 0.1% rise in the core PCE price index, a 0.4% 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 FORECAST RISK 

     This month, analysts are expecting core prices to rise 0.1%. Over the past

year, they have been very accurate in their estimate for the core PCE price

index. They have been on target for core prices seven times, underestimated

three times, and overestimated only twice. When analysts do miss, both their

overestimates and underestimates average 0.1pp, suggesting that if they miss in

either direction this month, it will likely be by a small amount. Because of

their history of accurately predicting core PCE, there is no clear risk for this

month's report.

     --POSSIBLE ENERGY PRICE REBOUND

     After two consecutive declines of 0.2% and 0.5% in June and July

respectively, the PCE Price Index for energy goods and services may be due for a

rebound in August. The Consumer Price Index for energy, which is a very reliable

correlate of the PCE Price Index for energy, rose 1.9% in August, suggesting a

rise for the PCE energy price measure. Additionally, because the PCE Price Index

for energy is known to be more volatile than the CPI for energy, the anticipated

gain in the PCE Price Index may be greater than the August CPI gain, which could

offset the recent losses.

     --CORE CPI SUGGESTS SOFT CORE PCE PRICES 

     Data released earlier this month by the BLS indicates that the core PCE

Price Index may come in soft in August. In August, core CPI rose only 0.1%,

which could indicate a modest gain for the core PCE Price Index. If core PCE

prices post a similar reading the August core CPI reading, it would push the

year over year rate up slightly to 1.98%, keeping the measure closely in line

with the Fed's inflation target. It should be noted, however, that the

correlation between the two indicators is cyclical, and has been weakening since

April.

     --SPENDING EXPECTATIONS MIXED

     In August, retail sales came in well below analysts' expectations. Based on

the soft 0.1% increase in August's retail sales report, spending on goods rose

by a relatively small amount. Additionally, the advance estimate for retail

sales points to a 0.8% decline in auto sales. Despite the dip in retail sales,

analysts are anticipating that a combination of lower taxes, strong consumer

confidence, and increasing income will fuel spending this month.

     --EARNINGS, PAYROLLS TO BOOST INCOME

     Data from August's nonfarm payrolls report suggest an increase in this

month's personal income. Average hourly earnings rose by 0.4% in August after a

0.3% gain in July, while payrolls rose 201,000. Even though the average workweek

was unchanged from July, the combination of the measures is a strong positive

sign for personal income.

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

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

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