Jan Income rose just .1% vs expectations of a gain of .4% and because Spending rose .5%, .1% more than expected, the Savings Rate fell to 3.3% from 4.2%, the lowest since Oct ’08. The compensation component of Income rose a solid .4% but an unexpected fall in disposable income due to an increase in federal non-withheld income taxes (payments of estimated taxes plus final settlement less refunds) weighed on the overall income figure and thus the savings rate should head higher again in the next few months as this tax impact looks one time. Headline PCE rose .2% m/o/m, thus REAL spending rose .3%. Core PCE was flat m/o/m. On a y/o/y basis, headline PCE rose 2.1% and the core was higher by 1.4%. With respect to the Fed, they will continue to take comfort in this inflation data but it’s the quantity of money that is so inflated (not velocity yet) and creates the game of chicken between future Fed action and when consumer prices head higher.
