Personal consumption expenditure was flat in December month-on-month, falling short of expectations of a 0.1% gain. The lacklustre spending data contrasts with a healthier monthly rise of 0.3% in personal income in December. The figure was slightly better-than-expectations of a 0.2% gain and suggests that US consumers are being cautious and saving more. The savings ratio increased to 5.5% from 5.3% during the period.
There was however an upward revision to the previous month’s consumption figures, which was revised up to 0.5% from 0.3%. A mild start to the winter may have impacted the December figures due to lower spending on seasonal items. For the full year 2015, personal consumption was still 3.4% ahead compared to a year earlier.
Disposable income was up by 0.3% month-on-month in December, slightly better than the 0.2% in the prior month, but growth in wages and salaries eased to 0.2% from 0.5% previously.
The US economy slowed in the last quarter of 2015 with annualized quarterly growth of just 0.7% versus 2% in the previous quarter. The flat spending growth in December is likely to have contributed to this since consumer spending makes up around 70% of US GDP.
In other data out today, the personal consumption expenditure (PCE) price index was up 0.6% year-on-year in December compared with 0.4% the prior month. The core PCE price index, which excludes food and energy components and is the Fed’s preferred measure of tracking domestic price pressures, was unchanged at 1.4% year-on-year. The index has been stuck around 1.3-1.4% for over a year and shows little sign of accelerating towards the Fed’s 2% target.
The dollar was unfazed by the personal income and spending figures but fell on weak manufacturing data that came out later in the US session. The euro was trading around 1.0880 dollars after the spending data but jumped above 1.09 dollars on the weak US manufacturing data. Against the yen, the dollar was steady around 121.25 yen before slipping below the 121 handle. Sterling also advanced against the dollar, climbing from around 1.4290 dollars to around 1.4350.
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