- The US nominal personal consumer expenditures (PCE) inched up 0.2% in January though the increase entirely reflected rising prices.
- The volume of sales declined 0.3% as auto sales pulled back and warmer-than-usual temperatures were likely to blame for a large pullback in spending on utilities.
Nominal spending on durable goods declined 0.3%, led by a 2.1% pullback in motor vehicle and parts sales that was flagged by an earlier-reported slowing in unit vehicle sales in the month. Sales of nondurable goods rose 1.0%, but entirely reflecting higher prices (including an 8% jump in gasoline prices). The volume of nondurable sales was unchanged in January. Spending on services was unchanged in nominal terms but declined 0.2% in real-terms although weakness was largely concentrated in an 11.8% drop in the volume of spending on electricity & natural gas as warmer-than-usual winter temperatures resulted in less need for home heating.
January spending growth was outpaced by a 0.4% rise in personal incomes, led by a 0.4% increase in employee compensation. The saving rate inched up to 5.5% from 5.4%. Annual growth in the headline PCE deflator rose to 1.9% (its highest level since October 2012) but the key core measure held steady at December’s 1.7% year-over-year rate of increase.
Our Take:
Much (although not all) of the weakness in spending volumes in January reflected a sharp weather-related pull-back in utilities spending that will reverse as temperatures return to normal. With electricity output also tracking below seasonal normal in February, however, that rebound is likely to be more of a March/April story. The weak starting point to spending in Q1 (January spending in volume terms is little changed relative to its Q4 average) and the prospect for weak utilities spending to persist in February points to downside risk to our forecast for a 2.4% increase in consumer spending in the current quarter with a gain closer to 1 1/2% looking more likely. Nonetheless, much of the expected slowing in Q1 can be explained by transitory factors. Labour markets continue to improve and interest rates are still-low. Looking through monthly/quarterly volatility, we expect the underlying consumer demand backdrop remains constructive.
