U.S. personal income rises, but inflation eats away most of the gain

Joseph Lazzaro — Fri, 29 Feb 2008 10:10:00 EST

Personal income rose in January 2008, but inflation also rose in January 2008, canceling-out the purchasing power of most of the personal income gains.

Nominal consumer spending increased 0.4% in January 2008 as did personal income, the U.S. Commerce Department announced Friday, in a statement. Each was above what economists surveyed by Bloomberg News have estimated -- a 0.2% increase for each.

However, inflation also rose in January 2008, canceling-out the purchasing power of most of the personal income gains.

Meanwhile, the PCE Deflator, which the U.S. Federal Reserve follows closely as a gauge of inflation, increased 0.4%. During the past 12 months, prices have risen 3.7%, roughly twice the pace of the 1.8% 12-month inflation rate as of August 2007.

Core inflation -- which excludes food and energy prices -- increased 0.3% in January 2008 and is running at a 2.2% rate during the past 12 months. That 2.2% rate is above the U.S. Federal Reserve's 1.5-2% target zone for PCE Deflator core inflation, commonly referred to as the Fed's "comfort zone."

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Spending sluggish, but inflation could be trending down

Melly Alazraki — Mon, 30 Apr 2007 09:16:00 EST

Filed under: Before the Bell, Economic Data

A slew of economic reports is expected for this week, and already this morning several data points were released. Economists expected:

March personal income and spending were both are set to increase 0.5% after a rise of 0.6% in February.
Core personal consumption expenditures inflation, or core PCE inflation, was expected to tick 0.1% in March after a 0.3% increased the month before. This measure is a favorite of the Fed for determining inflation .

Well, personal spending in the U.S. rose 0.3% in March, less than forecast. This is probably due to higher gasoline prices and a sluggish housing market. In fact, adjusted for inflation, spending fell by the most since September 2005. As the housing market stumbles and manufacturing slows, economists and the Federal Reserve have counted on consumer spending to keep the economic expansion going. This latest figure may suggest consumers may not be able to contribute much to the economy. And if gasoline prices remain high or become ever higher, consumer contribution may even be lower.

Personal income in March rose 0.7%, above the forecast. Wages have so far helped sustain spending. Disposable income (after taxes) increased 0.7% in March. Savings also improved.

The core PCE inflation was unchanged in March for the first time since November. This puts it at a 2.1% YOY rate, which is trending down. Total inflation, however, is 2.4%. The Fed's comfort zone is in the range of 1-2% rate of inflation, so if the declining trend continues, we might get to the top of the Fed's comfort range. This could ease some fears the U.S. economy is headed toward stagflation.

It seems the market is reacting favorably to the report as futures have ticked up following the data.

Spending sluggish, but inflation could be trending down originally appeared on BloggingStocks on Mon, 30 Apr 2007 09:16:00 EST. Please see our terms for use of feeds.

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