Data released Friday in the United States showed an increase in real personal spending and higher inflation numbers. Analysts at Wells Fargo point out that a clean reading of January earnings is difficult. They argue that while the jump in wages supports spending, it’s a challenge for the Federal Reserve to keep the heat on inflation.
Signs of resilience under volatility
“Real personal spending picked up again at the start of the year, with growth of 1.1% in January more than offsetting the weakness at the end of the year. The retail sales report for January pointed to room for an early-year recovery, at least in terms of spending on goods.
“We think the strength in durables is due to monthly volatility rather than renewed consumer interest in spending on goods.”
“The staying power in real personal income is a mixed blessing. While this could provide a path to the elusive soft landing by supporting consumer spending more sustainably than reduced savings or reliance on more expensive credit cards; it could also point to a slower decline in services inflation that could force Fed go higher longer.”
“The core PCE deflator rose 0.6%, showing the road to 2% inflation will be bumpy.”