MNI DATA PREVIEW: Core PCE Price Index Seen +0.1%, Y/Y 1.5%

By Sara Haire and Holly Stokes

HIGHLIGHTS:

- Personal income and spending expected to see a 0.4% rise.

- Analysts expect some damage to spending due to post-hurricane normalization,

but others argue the possibility of a surge given the 0.8% gain in retail

spending. 

- Core PCE price index to fall slightly to a 0.1% gain, with the year/year

rising due to base effects.

- Recent history of accurate forecasts suggests low risk of surprises.

     WASHINGTON (MNI) - November personal income and personal spending are both

expected to post 0.4% gains, while the core PCE price index is expected to slow

to a 0.1% rise after two months of 0.2% gains. 

     The expected 0.4% gain in personal income would be the third in row.

Despite soft wage growth, Morgan Stanley believes that the strong gain in

nonfarm payrolls and the increase in weekly hours worked will be enough to

continue the recent growth trend. 

     While the median forecast for personal spending is a healthy 0.4% gain,

analysts such as Credit Suisse predict that it could rise by 0.6%, given the

surprise 0.8% surge in retail spending. If correct, Credit Suisse notes that

this would push personal spending year/year up 3.9% - the fastest pace in two

years.  

     However, Capital Economics cautions that normalizing post-hurricane auto

sales and warm-weather-dampened utilities may have stifled some of spending's

strength. 

     As US equities continue to boom, BMO points out the temporary wealth effect

keeping the savings rate hovering around decade lows. 

--SOFT INFLATION CONTINUES

     Based on the already released CPI and PPI reports, analysts surveyed by MNI

unanimously agree that the core PCE price index should see only a 0.1% rise. BMO

attributes part of this lackluster inflation to heavy holiday discounting,

noting record breaking Cyber Monday sales. Nomura also states that residual

seasonality tends to keep the core inflation measure down in November and

December. 

     Due to base effect of a flat reading last year, analysts expect core PCE

price index year/year to inch up to 1.5% or 1.6%. However, that rate is still

well below the Fed's 2.0% target. This, in conjunction with the two dissents to

last week's rate hike, leads CIBC to believe that the Fed will be on hold

throughout the first quarter, waiting for stronger acceleration before

authorizing further monetary tightening.

     After the December meeting, the FOMC released their projections with the

median for the core PCE price index looking to reach 1.9% in 2018, 2.0% in 2019,

and 2.0% in 2020, indicating an expected acceleration in the future, something

analysts are skeptical about. 

--UNLIKELY TO SURPRISE

     In the past four months, analysts have come in on target three out of the

four months for the expected personal income, and only slightly underestimated

October. In the past year, analysts have been on target five months and split

the rest of the months between estimating above or below the actual, indicating

analysts have a relatively accurate track record with predicting personal

income. 

     Analysts have an even better recent history predicting core PCE m/m seeing

as they have done so nine out of the last twelve months, with only slight misses

(a tenth of a percentage point). 

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

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

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