There were a few important reports on the U.S. economy released this morning. First, data from the Department of Commerce showed that personal income for Americans rose by 0.4 percent in January, better than expected. During this same period consumer spending, which accounts for more than two-thirds of the economy (GDP), lifted by 0.2 percent, the smallest gain in five months but in line with forecasts. Contributing to the post-holiday slowdown in consumption was a jump in Americans’ personal saving rate to 3.2 percent, the highest reading since August. As for inflation, the core personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred measure of consumer price changes, rose by the most in a year in January. That should help FOMC members justify another rake hike at the monetary policy meeting later this month.
Elsewhere, the manufacturing purchasing managers' index (PMI) from IHS Markit ended February at 55.3. That is down fractionally from the 34-month high hit in January and therefore still one of the best readings of the past few years. Softer output growth contributed to the slight decline in the headline index last month, but surveyed manufacturers continued to cite greater client demand and increased order book volumes. That strain on capacity helps explain why factory job creation expanded last month at the third-fastest pace since June 2015. Input cost inflation, though, also rose last month, but the increase in material prices could be just a temporary headwind related to supplier delays, according to the report, and many managers said that higher costs were able to be passed onto clients. Chris Williamson, Markit’s chief business economist, added that “demand is running ahead of supply, meaning pricing power is improving.” Similarly, the Institute for Supply Management's (ISM's) manufacturing index ended February at 60.8. That is up from 59.1 in January, the highest reading since September, and much better than anticipated. Measures of new orders, production, and margin strain all deteriorated last month, but employment, order backlog, and exports improved. Comments from surveyed managers were generally positive in February, although several respondents complained about labor quality.
Sources: Econoday, U.S. DoC, ZH, IHS Markit, ISM, FRBSLPost author: Charles Couch