U.S. personal income rises above consensus expectation in January

U.S. personal income rose above consensus expectation in January. Personal income rose 0.4 percent, as compared with expectations of 0.3 percent rise. A reduction in current personal taxes led to an even more sizable rise in disposable income, which rose 0.9 percent on the month. Controlling for inflation, real disposable income rose a strong 0.6 percent.

Personal spending came in line with expectations, rising 0.2 percent in nominal terms, but, spending dropped 0.1 percent. Component wise, real spending on durable goods fell 1.6 percent, pulling back after a solid 0.6 percent rise in December. Non-durable goods spending came in flat, while services spending rose 0.1 percent.

Prices were up 0.4 percent sequentially in January, as energy prices rebounded 3 percent. Headline inflation remained the same at 1.7 percent year-on-year. Core prices strengthened, rising 0.3 percent sequentially in January, but core inflation stayed at 1.5 percent year-on-year. The personal saving rate rose to 3.2 percent from an upwardly revised reading of 2.5 percent in December, as households held on to some of their windfall gains from lower taxes.

Consumer spending began the year on a weak note. The softness to begin the year is expected to suggest a relatively slow first quarter in terms of real GDP growth, noted TD Economics in a research report. Despite the relatively solid growth in February and March, both real consumption and GDP seem likely to have a one-handle in front of them.

“With both tax cuts and a tightening labor market likely to push up income, household demand is expected to accelerate enough to pull growth to an above-trend rate over the remainder of 2018”, added TD Economics.

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