Consumer spending in the United States likely slowed at the start of 2018, data on Thursday is forecast to show, while the Federal Reserve’s preferred gauge of inflation is not expected to reveal an immediate risk of an uptick. The data on personal income and spending will be the first since the better-than-expected wage growth and CPI numbers for January, and the first after Jerome Powell took the help at the Fed.
Personal income is expected to rise by 0.3% month-on-month in January, a slight moderation from December’s 0.4% rate. Personal consumption is also forecast to ease, growing by just 0.2% m/m – half the rate of the prior month. If confirmed, the data would point to a softer start to the near year for US households and consumers. However, this is unlikely to develop into a trend as the Republican tax package and the tightening labour market should lift both household incomes and consumption over the coming year.
The more closely watched item of Thursday’s release will be the Personal Consumption Expenditures (PCE) measure of inflation. The core PCE price index, which the Fed targets for its 2% inflation objective, is expected to remain unchanged at 1.5% year-on-year for the third straight month in January. This compares with the headline rate of 2.1% of the consumer price index for the same period.
Should the core PCE price index unexpectedly pick up in January, it could give the dollar an additional lift, which was already boosted this week from Fed Chair Jerome Powell’s hawkish remarks at his semi-annual monetary policy testimony before Congress on Tuesday. The dollar could set its eyed on the 108-yen level.
An overall reading that is more-or-less in line with expectations and confirms the view that 2018 got off to a slow start would likely confine dollar/yen to the 106-108 range for a while longer. On the other hand, an unexpected weak report could push the pair back below the key 106 level and towards February’s 15-month low of 105.52.
It’s possible though that even in the event of a disappointing set of figures, markets may choose to overlook one-month’s data as the odds of a fourth rate hike were given a major boost after Powell’s testimony. Whether or not this feeds into a sustained rally for the US currency, however, is another question, as rising treasury yields have so far failed to shift the greenback out of its bearish phase.
