The stronger consumer spending and income report for January is very re-assuring for the US economy. Consumer spending recorded a moderate growth during the end of 2015 and is off to the races in 2016 with real consumption growth expected to return to annualised rate of 3% in Q1.

However, the outlook still faces certain downside risk, which most of it stems from the recent financial market volatility that might have led to certain decline in consumer confidence metrics recently. Still, the consumer confidence tends to be choppy, with the University of Michigan consumer confidence stating an improvement.

US personal income in January expanded strongly by 0.5% m/m, more than consensus forecast of 0.4%. The real disposable income, excluding taxes and inflation, increased a solid 0.4% m/m. Meanwhile the country's personal spending grew 0.5% m/m, as compared with the market expectations of a gain of 0.3% m/m. This is a significant growth as compared to the upwardly revised December's data of 0.1% m/m. Spending, in real terms, increased 0.4% m/m, after rising 0.2% in December 2015.

The increases were broad-based. Real spending on goods led the way, with durable goods expanding 1.1% m/m, while non-durable goods increasing 0.4% m/m. Real services spending continued with its pace, increased 0.3% m/m, the same as in December. Meanwhile, the personal saving rate remained the same at 5.2%. Since mid-year 2015, the savings rate in the US has increased from a low of 4.8% in May 2015.

Meanwhile, according to the PCE price deflator, consumer prices rose in January. Headline inflation acceleration 0.1% m/m, whereas the core measure, excluding energy and food, accelerated 0.3% m/m. On a yearly basis, both core and headline measures accelerated 0.2pp, rising by 1.3% y/y and 1.7% y/y respectively. This is the highest core PCE inflation in almost three years. Meanwhile the headline PCE recorded the fastest growth since October 2014.

The financial market volatility is unlikely to have a significant impact on the US consumers. Personal income continues to grow above 4%. Consumers in the US will keep on spending with an increase of job creation and accumulating savings at the pump.

The acceleration in core PCE inflation was partially expected due to the strong report of January's CPI; however it should nonetheless cement the view that the US economy is unlikely to enter a period of disinflation and that price pressures are really starting to build.

"This should the FOMC more assurance that that their gradual tightening cycle is not impinging on the recovery, ultimately enabling the Fed to raise rates two more times this year in our view", says TD Economics.