On Monday, the U.S. Department of Commerce published a report about personal income and outlays for January. The key issue is that U.S. personal spending declined for a second month in a row, which casts some doubts on the soundness of the economy. Is it important for gold investors?

According to the report, personal outlays fell 0.2 percent in January. It means that consumers are still paying down debt and boosting savings, instead of spending money in retail shops. It is not necessarily bad for the economy, however less intense consumer spending translates to lower GDP and CPI inflation, which may postpone the Fed’s never-starting interest rate hike. What is perhaps the most important is that the outlays for U.S. construction projects declined 1.1 percent (separately, private construction spending fell 0.5 percent).

Another interesting piece of data published by the Department of Commerce was the Personal Consumption Expenditures Price Index, which was only 0.2 percent higher in January than a year earlier, the lowest reading since October 2009. It means a 33rd consecutive month when U.S. inflation undershoots the Fed’s target. We can observe a similar, or actually even more deflationary, trend in the Consumer Price Index. The Labor Department reported last week that the CPI for all urban consumers declined 0.7 percent in January, falling into negative territory.

It is true that this drop may be attributed mainly to the fall in energy costs (prices of all items except food and energy increased 1.6 percent in January). On the other hand, the last time deflation in consumer prices occurred was during the recession in 2009. Please remember that the decline in oil prices in 2008 started in July, a few months before the Lehman Brothers’ collapse. It may be only an imprecise analogy, but there are some signs that the U.S. manufacturing sector is cooling off, indeed. The Institute for Supply Management’s manufacturing index (published also on Monday) fell in February for a fourth month in a row, which may reflect weaker economic activity and not “transitory,” but more fundamental deflationary pressures.

The bottom line is that the economic outlook for the U.S. economy is more complex that it is commonly believed. There are some positive signs, for sure, we do not deny it (for example, wages were up in January). However, the recent data on consumer spending and inflation are a different piece of news, which makes the Fed’s interest rate hike probable later rather than sooner. This is, obviously, good news for gold investors.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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