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First Cut: Personal income increases moderately in November, consumption up as well, PCE deflator on trend and still tame

Personal income was up 0.5% in November, buoyed by a 0.4% increase in wages and salaries. Although wage and salary growth is uneven, it is still generally rising solidly over time, if not enough to spark inflationary pressures. Personal consumption expenditures were up 0.4% in November and got a boost from a rebound in spending on durables of up 1.0% after the end of the strike at GM in late October. Nondurables spending was up 0.2% in November and kept in check by declines in gasoline prices. Services spending was consistent with the recent trend at up 0.4% month-over-month in November. Taken together, consumers are continuing to see modest gains in income and spending is keeping pace. With the first two months of the fourth quarter 2019 available, it suggests that personal consumption expenditures are going to be the big contributor to GDP growth in the fourth quarter as it was in the second and third quarters.

The PCE deflator was up a tenth to up 1.5% year-over-year in November, while the core PCE deflator was down a tenth to up 1.6%. The small moves are not significant. The PCE deflator is the Fed’s preferred measure of inflation. While it remains noticeably below the 2% symmetric target, it holds out the possibility that the Fed will decide to provide more accommodation in interest rate policy to stimulate it. However, I would say probably not while the the labor market remains exceptionally strong and yet with maybe a little slack to spare.

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