Despite a slightly better than expected rise in personal income (+0.4% MoM), Real Personal Spending declined 0.1% in January - its biggest drop since January 2016.
The was the bad news; the good news was in the nominal Personal Income number, which rose 0.4% MoM in January (vs 0.3% expected rise), the same growth as in December. The number got a big boost from the tax cuts which started filtering through to paychecks thanks to one-time corporate bonuses. As a result, worker pay adjusted for inflation and taxes rose 0.6%, the most since December 2012. Wages and salaries were adjusted up by $30 billion to reflect one-time bonuses given out in wake of tax cut legislation.
Additionally, consumers benefited from the $115.5 billion annualized drop in personal taxes.
Meanwhile, Personal Spending growth slowed to 0.2% MoM from 0.4% MoM in December.
And with the PCE Deflator coming in hotter than expected at +0.4% MoM, real personal spending dropped the most in 2 years...
Meanwhile, inflation continued to tick up if not at a runaway pace, with the PCE Price Index rising 0.4% M/M, and 1.7% Y/Y while the January PCE Core Price Index rose 0.3% M/M and 1.5% Y/Y.
Commenting on the data, Bloomberg senior economist Yelena Shulyatyeva said that "The stall in retail sales in January was a precursor to a more pervasive pattern in overall household consumption. Weakness in personal spending should be temporary, likely the result of two factors: adverse weather hindered retail sales at the start of the month, and the January data may be payback after a stellar fourth-quarter performance. Robust disposable income growth, driven by tax cuts, will likely boost consumption as the first quarter progresses."
It appears American consumers finally had their 'come to jesus' moment with credit excess as the savings rate jumped off record lows, also largely thanks to the tax-cut impact.
Which is the last thing the administration and The Fed wants - remember, saving bad, spending good.
Still, in context, this report - together with yesterday's GDP print which showed resilient Q4 spending - confirms that the US consumer is doing well, at least for the time being.