U.S. personal income and spending rise in December, likely to remain firm in coming months

Personal income in the U.S. was up in December and was consistent with the market expectations. It rose 0.3 percent sequentially in December. Excluding inflation and taxes, real disposable income was up 0.1 percent on a sequential basis. Consumers in the U.S. were evidently in a spending mood. Consumption grew 0.5 percent, in line with expectations, accelerating from the earlier two months.

Spending, in real terms were up a decent 0.3 percent after rising 0.1 percent in November. Spending gains were concentrated on durable goods that rose 1.4 percent sequentially. Services spending came in strong at 0.3 percent for the second straight month. Higher spending and more modest income gains saw the savings rate drop further to 5.4 percent. The personal saving rate dropped down in 2016 after rising through 2015.

Inflation, gauged by the year-on-year change in the personal consumption deflator, rose to 1.6 percent in December from 1.4 percent in the prior month. Core PCE inflation, which strips out food and energy, remained stable at 1.7 percent.

The report came in strong for December and gives a nice handoff for consumer spending growth moving into 2017. Consumers in the U.S. were the main driver of growth in the fourth quarter and the momentum is likely to be sustained in the first quarter of this year.

Consumers have been working down their savings buffers accumulated since the decline in energy prices; however, the saving rate is quite low. Income growth is likely to pick up in coming months, reflecting strong wage and employment gains, giving a strong foundation for consumer spending, added TD Economics.

At 05:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at -27.8785. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex