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First Cut: Personal income higher in February, consumption sluggish through January, PCE deflator reflects low energy costs through January

The report on personal income and spending included income data through February, but the numbers for consumption still have not caught up after the government shutdown and were only through January. This should be rectified by the time of the next release on Monday, April 29 at 8:30 ET.

Personal income resumed its modest path of upward moves month-over-month at up 0.2% in February after a jump of 1.0% in December followed by a dip of 0.1% in January that was probably related to payment of bonuses earlier than usual after change in tax laws. Wages and salaries had a trend-like up 0.3% in February as businesses steadily increase pay in a tight labor market.

Personal consumption expenditures were up 0.1% in January after down 0.6% in December. Consumers are still slow on purchases of durable goods like motor vehicles (-1.2% in January after -2.9% in December). Spending on nondurables rose 0.3% in January after energy prices started to rise again. Services spending was a bit lower at up 0.2%, but consistent with a series of modest increases.

The PCE deflator for January was up 1.4% compared to a year earlier. Soft energy prices continued to restrain overall increase. However, even excluding food and energy, the year-over-year increase slipped to up 1.8% after up 2.0% in December. This is still in line with recent readings and not far off the Fed’s 2% objective. Fed policymakers will view continued stable inflation as supportive of their decision to put rate increases on hold for now.

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