US personal consumption expenditure preview

Personal consumption, income data along with PCE price index would be released from US at 15:00 GMT.

Why it matters?

• Personal consumption and income data provide information on consumer sentiment. Consumers tend to spend more, should they perceive upcoming time to be favorable.
   
• Increase in income also improves sentiment and purchasing power of consumers.
   
• PCE price index or PCE deflator is FED's preferred measure of inflation indicator. So this gauge is of extreme importance as FED's price stability mandate makes inflation is of higher priority as of now. Jobless rate is already near FED's longer term target level.
   
• Moreover recently many FED policymakers have indicated that they are not likely to vote for further rate hikes, unless inflation edged up and be in line with medium term outlook.

Past trends                   

• PCE price index, largely due to oil price started falling from 1.8% y/y in mid-2014 to as low as 0.1% y/y in June 2015. It has remained in the low area since. In December PCE price index dropped to -0.1%.

• Core PCE price index is also pointing to slowdown as lower energy prices might be feeding into prices and spending remains subdued. In December core PCE came at 1.4% y/y.
   
• Personal income growth has remained positive since 2013, however at subdued pace. Income has picked up somewhat last year as improvement in the economy might finally be adding pressure on wages. In December personal income grew 0.3%.
   
• Personal spending has been more volatile and subdued, after growing as much as 0.9% in May, again dropped to as low as 0.1% in September. In December, there was no growth.

Expectation today -

• Personal income is expected to grow by 0.4% and spending at 0.3%.
• However Core PCE is expected to drop to 1.2% y/y.

Market impact -

• If data sours, it would pose doubts over growth of world's largest economy. Equities currently look like to be filled with steam and that may get punctured if data sours too much.

S&P 500 broken above its resistance area and currently trading at 1962. Dollar index on the other hand is currently trading at 97.44, flat for the day.