- US nominal personal consumer expenditures (PCE) rose an expected 0.5% in December following a 0.2% increase in November and 0.4% October gain. Spending was up 0.3% on a volumes basis.
As-expected, overall December spending was boosted by a 2.8% increase in motor vehicle sales (consistent with the earlier-reported 3% increase in December unit vehicle sales) that contributed to a 1.4% gain in spending on durable goods. Spending on services also posted a solid 0.4% gain, although driven by a weather-related 12.2% monthly rebound in spending on electricity & gas that retraced most of a 13.5% decline over the previous three months (temperatures were closer to normal in December after a warmer-than-usual start to the winter, on balance). Spending on nondurable goods inched up 0.2%, though solely the result of higher prices with the volume of spending on non-durables unchanged.
Personal incomes continued to grow, rising 0.3% in December following a 0.1% gain in November and 0.5% jump in October. With monthly spending nonetheless outpacing monthly income growth, the saving rate inched lower to 5.4% from 5.6% in November and 6.1% a year ago.
Annual growth in the PCE deflator moved up to 1.6% from 1.4% in November as energy prices moved higher. The core PCE deflator held steady at 1.7% year-over-year, unchanged from November.
Our Take:
Today’s consumer spending numbers provide the monthly pattern behind the solid 2.5% increase in real spending in the advance Q4/16 GDP report. The strong finish to the end of the quarter (real spending in December was an annualized 1.1% above its Q4 average) bodes well for another strong gain in Q1/17. We expect household spending will remain a support to economic activity going forward reflecting strong labour markets, rising consumer confidence, and low interest rates. Although still early, data-to-date (including strong household spending, a pickup in business equipment shipments, and a bounce-back in December exports) point to solid underlying momentum in the economy. We expect overall GDP to increase at an above-trend 2.3% rate in Q1/17 to build on a 1.9% Q4 gain and 3.5% jump in Q3. Although much uncertainty remains about the future of U.S. government policy under the new Trump administration, we expect underlying economic improvement is strong enough to warrant higher interest rates and look for the Fed to implement two additional 25 basis point hikes to the fed funds target range this year.
