Personal Income: +0.4% month-over-month (Cons: +0.3%), +4.1% year-over-year
Personal Consumption Expenditures: +0.4% month-over-month (Cons: +0.4%), +4.6% year-over-year
Core PCE Price Index: +0.2% month-over-month (Cons: +0.2%), +1.5% year-over-year
Savings Rate: 2.4%, -0.8 percentage point (ppt) year-over-year
Personal income rose a healthy 0.4% in December compared to November. Personal income growth accelerated to 4.1% year-over-year growth, the highest reading since November 2015. Wages and salaries, which make up ≈50% of personal income, grew 4.9% year-over-year in December and were up 4.4% at an annualized rate over the last six months. Solid wages and salaries growth, coupled with a potential boost from income tax reform, should continue to support healthy personal income growth for the U.S. consumer.
Nominal personal consumption rose 0.4% month-over-month in December after November’s month-over-month growth was revised to +0.8% from +0.6%. Nominal personal consumption growth in December was driven by durable goods consumption, which rose 0.7% month-over-month, and services consumption, which rose 0.5% month-over-month. Real personal consumption rose 0.3% month-over-month in December and was up 2.8% year-over-year.
The savings rate declined 0.1 ppt to 2.4% in December and has now fallen from over 6.0% in 2015 to a new cyclical low. The U.S. consumer has grown increasingly confident alongside a tightening labor market and personal consumption has been the key driver of GDP growth over the past several years.
December’s Real personal consumption data was included in the Advance Estimate for Q4 Real GDP that was issued on Friday, January 26.
Regarding inflation, month-over-month growth for the core PCE price index was 0.2% growth in December, while year-over-year growth remained steady at 1.5%. With transitory factors rolling off the annual calculation and solid wage growth poised to endure, we view the current state of the economy as modestly inflationary.