US December real personal spending rises but inflationary pressures remain weak

US December real personal spending rose 0.1% m/m after an upwardly revised 0.4% m/m rise in November. The December personal income and spending implies that US Q1 2016 real GDP growth outlook is positive; however, lack of inflationary pressure in the PCE deflation gauge of prices is one reason why the US Fed might hold rates in March.

Spending on durable goods dropped 0.7% m/m in December, mainly indicating a decline in motor vehicle sales. However, it is expected to recover in January.

Real personal disposable income grew 0.4% m/m, whereas nominal incomes grew at a slightly more moderate rate of 0.3% m/m, while wages and salaries rose 0.2% m/m. The rate of savings rose to 5.5% from 5.3%, implying that consumers are still hesitant to spend their gasoline savings on other services and goods.

The latest drop in gasoline prices led to a drop in the headline PCE deflator gauge of prices by 0.1% m/m. However, the annual inflation rate accelerated to 0.6% from 0.4% as energy prices dropped at a faster rate. The core prices remained the same in December.

Moreover, the annual core inflation rate also remained the same at 1.4% in December; however, the three-month annualised rate dropped to just 1.2% from 1.4%. This indicates that the PCE measure is moving further away from the 2% target rate set by the US Fed.