Consumer spending rose merely by 0.1 percent in February, according to the report on the U.S. February Personal Income and Outlays. What does it mean for the U.S. economy and the gold market?
Compared to the decline in January, the February increase is a positive sign; however it was below expectations (0.3 percent rise) and below its historical trend. The growth rate has been declining since March 2014 (see the chart below), so please do not blame weather.
Figure 1: Personal Consumption Expenditures from February 2014 to February 2015 (monthly percent change).
Personal incomes rose by 0.4 percent, which looks as good news, at first glance. However, if you scratch beneath the surface, you will find that wages and salaries increased by 0.3 percent, a drop from a 0.6 percent rise in January. Therefore, the rate of wage growth is declining, which may postpone the Fed’s interest rates hike. It is worth noticing that personal dividend income reported the highest jump – by 2.8 percent (while wages and salaries in manufacturing were practically flat), which will be difficult to repeat in March.
With regards to the inflation rate, the Federal Reserve’s preferred PCE index rose 0.2% in February, in contrast to a decrease of 0.4 percent in January, which reflects the stabilization of the oil prices around $50 per barrel (WTI). What is interesting is that the core PCE index, which excludes food and energy, increased even more mildly, by 0.1 percent. However, the PCE index has risen just 0.3 percent in the past 12 months (the core PCE price index increased 1.4 percent in the 12 months through February), much below its historical trend and the Fed’s target.
The bottom line is that the U.S. February Personal Income and Outlays could be interpreted as negative news for the gold prices. Consumer spending rose by 0.1 percent, personal income increased by 0.4 percent and the PCE rose by 0.2 percent, in line with the CPI. However, consumer expenditures and the inflation rate are significantly below the average for the last few years. Positive PCE inflation (after a negative number in January) does not necessarily brings us closer to the Fed’s hike, because in March oil prices were falling and the U.S. dollar was rising, which will again exert downward pressure on inflation and could postpone or soften the Fed’s tightening, to the satisfaction of the gold bulls. Similarly, the rise in personal incomes does not necessarily warrant the Fed’s hike, because it reflects more a jump in personal dividend income than robust wage growth. Indeed, in February wage growth was slower than in January. We have to wait for the March jobs report scheduled to be released on Friday. Stay tuned!
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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