• Personal income growth slowed in December, rising by 0.2% month-on-month (November:+0.4%), a tad lower than market expectations (+0.3%). A slowdown was also observed in real disposable income, which contracted by 0.1% in December following an increase of 0.3% in November.
  • Spending advanced by 0.3% in December, in line with market expectations. Stripping out price effects, real spending growth was 0.1% for the month, down from 0.3% in November, also in line with what the market had anticipated. Growth in durable goods spending saw the biggest decline, falling from 1.2% m/m to -0.3% in December.
  • On the prices side, the PCE deflator moved higher, increasing by 0.3% m/m, surprising markets by +0.1 p.p. The increase was still present even when stripping out food and energy prices. The core PCE deflator was up 0.2% m/m in December, up from 0.1% in November. In year-over-year terms, core inflation stood at 1.6% last month.

Key Implications

  • Consumer spending lost a little momentum last month, but it’s not entirely surprising given the strength we saw in November. Spending on durable goods, which had surged the month prior, gave back some of its gains in December. Still, today’s data provide a solid hand-off into the first quarter of 2020.
  • Americans may have held back some spending due to unexpected increases in prices, specifically that of non-durable goods and services. Indeed, the rise in prices last month meant a loss in purchasing power. Real disposable income contracted for only the third time through all of 2019 in December.
  • Today’s release further supports the Fed’s position to remain on the sidelines. Despite the loss in momentum, consumption is holding firm and inflation may be showing signs of life, although it is just one data point. If the data continue to trend in this fashion, the Fed may feel comfortable in leaving rates untouched through 2020.


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