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US Consumer Spending Rises

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The US Bureau of Economic Analysis together with the Department of Commerce has just published this month’s data relating to Personal Income and Expenditure. These important data releases paint a picture of consumer activity and once inflation is allowed for they give an indication of short-term consumer sentiment.

Personal Spending rose 0.3% in February compared to a rise of 0.2% in January, 0.3% had been expected. The inflationary component of this is measured by the Core Personal Consumption Expenditure – Price Index, the year on year reading for this is again 1.1%, consistent with the January figure. Finally, the Personal Income data for the month also held steady at 0.3%, this is in line with the previous month’s number.

Consumer spending is estimated to fuel about two thirds of US economic activity.

Today’s numbers therefore bode particularly well for US growth prospects. Yesterday annualized US GDP growth estimates were increased from 2.4% to 2.6% and economists are expecting this growth rate to accelerate as the year progresses.

The market is now firmly expecting the Fed to begin an interest rate hiking cycle early next year. Janet Yellen more than hinted at such in a recent address and the yields achieved at Wednesday’s auction of 2 year notes show that the markets fully believe her.

The question now being put back on the table is whether the Fed intends to accelerate the tapering off of it’s bond buying program. Sentiment is certainly turning very bullish for the US economy and data in recent weeks have backed this up. The Fed however is taking a cautious approach and so a reaction is unlikely at the April FOMC meeting. It will be important to closely watch the rhetoric from the voting members of the Fed’s monetary policy committee over the coming week’s, Plosser and Yellen in particular, for signs of the Fed opening the door to enable it truncate it’s monetary tightening timeline.

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