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

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

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

survey calling for a 0.2% 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 FORECAST CORE PCE RISK

     Based on analysts' history, there is no risk to their estimated 0.2%

increase for this month's core prices. In the last year, analysts have both

overestimated and underestimated core prices three times and been on target

seven times. Additionally, their misses in either direction this past year

average just 0.1pp, indicating that a miss either direction in this month's

estimate would be relatively similar in size. Because of analysts' history of

accurately forecasting core PCE, there is no clear risk for this month's report.

--DOWNSIDE ENERGY PRICE RISK 

     In the Consumer Price Index report for September, the CPI for energy posted

a 0.5% decline. This indicates that the PCE Price Index for Energy Goods and

Services could post a similar decline in Monday's report, as the two indicators

are very strong correlates. In fact, the monthly percent changes in the two

indicators have been nearly identical since January 2018, and were identical in

July and August. Historically, the PCE Price Index for energy has been a more

volatile indicator than the energy CPI, barring the recent convergence, so it is

possible that the PCE Price Index for energy could post a larger decline than

the CPI for energy, but should still move in the same direction.

--CORE PRICES SEEN SOFT

     In August, the core Consumer Price Index posted a soft gain of 0.1%

month-over-month, followed by a gain of 0.04%, rounding down to flat, for the

core PCE Price Index. In September, the core CPI once again posted a soft 0.1%

gain, possibly hinting at another soft month for core PCE prices. If the core

PCE Price Index matches the 0.1% in the core CPI, it will lower the

year-over-year rate of growth to 1.9%, slightly short of the Fed's target.

However, a six-month running correlation of the two indicators currently stands

at r = 0.55, so it is not certain that the core PCE Price Index will match the

change in the core CPI. A 0.2% rounded gain would keep the year/year rate at

2.0%.

--RETAIL SALES NEGATIVE FOR PCE

     Earlier this month, the US Census Bureau released the monthly advanced

report on retail sales. The report showed that headline retail sales experienced

soft growth in September, rising only 0.1% month-over-month. The picture was

worse for ex. auto sales, which declined 0.1% in September. Like the core CPI,

this soft reading followed another soft headline gain of 0.1% in August.

Headline personal consumption expenditures grew 0.3% and real personal

consumption expenditures grew 0.2% that same month, so they may have similar

readings for September.

--EARNING TO BOOST PERSONAL INCOME

     Finally, data released earlier this month in the September employment

report suggest that personal income will continue to steadily increase in

September, in line with analysts' predicted 0.4% increase. Average hourly

earnings rose 0.3%, the same amount as in August after revisions. While

September payrolls rose by 134,000, a much smaller gain from the previous month,

this gain combined with an upward revision to 270,000 for August suggests a

positive outlook for personal income this month.

--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

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