Tag: personal income

Monday Economic Report – June 30, 2014

Here are the files for this week’s Monday Economic Report: 

The U.S. economy contracted in the first quarter more than we previously thought, with real GDP down 2.9 percent at the annual rate. The sharply lower revision was much worse than the previous estimate of a 1.0 percent drop. Decreased inventory spending and weaker goods exports accounted for much of the decline in output, but consumer spending on services also increased at a slower pace than earlier reports suggested, contributing to the latest revision. Fixed investment and government spending were also drags on growth. Overall, the data confirm that economic activity started 2014 on a disappointing note, but they also suggest that this softness went beyond weather-related slowdowns.

However, the real GDP data also point to a possible strong rebound in the current quarter. For instance, inventory spending is likely to pick up as more firms restock their shelves. In addition, other data point to recoveries in manufacturing activity and retail sales in the second quarter, which should help boost consumer and business spending figures. Real GDP should exceed 3 percent in the second quarter, bouncing back from the weak data in the first quarter. Moreover, manufacturers remain mostly positive about the second half of this year. Perhaps that is why financial markets seemed to mostly shrug off the bad news on real GDP last week.

Indeed, many of the measures of health for the manufacturing sector remain encouraging. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) increased from 56.4 in May to 57.5 in June. This was its fastest pace in more than four years, led by strong gains in both new orders and output. Manufacturer sentiment in both China and Japan also stabilized after contractions in previous months. At the same time, manufacturing activity in the Kansas City and Richmond Federal Reserve Bank districts continued to expand, albeit with both at slower paces than the month before. These two releases were largely consistent with other regional surveys, including those from New York and Philadelphia, showing rebounds since the winter months.

Still, not all of the manufacturing news out last week was positive. Durable goods orders fell 1.0 percent in May, reflecting weaker-than-anticipated growth for the sector. Much of that decline stemmed from reduced nondefense aircraft and parts sales, although the broader data were also mixed. Meanwhile, European manufacturing activity continued to decelerate. The Markit Flash Eurozone Manufacturing PMI declined from 52.5 to 51.9, falling for the second straight month. Slower growth on the continent has weakened many of the key activity measures, including new orders, output, exports and employment. Of course, it is also worth noting that Europe’s expansion remains uneven, with Germany seeing a marginal gain in activity in June while France fell back into a contraction.

In other news, personal spending improved in May after remaining flat in April, assisted by a decent rebound in durable goods purchases. Personal income also showed a slight uptick, with manufacturing wages and salaries continuing to move higher. Such reports have helped to lift consumer confidence, with data from the Conference Board’s index increasing to its highest level in more than six years. The consumer sentiment measure from the University of Michigan and Thomson Reuters also edged higher, but with persistent anxieties about future economic and income growth. Finally, there were encouraging headlines on the housing market last week, with strong gains in both existing and new home sales in May.

This week, we will get new jobs numbers on Thursday—one day earlier due to the Independence Day holiday on Friday. I would expect employment growth similar to what we saw in May, with a consensus estimate of 210,000 additional nonfarm payroll workers and around 10,000 or so net new manufacturing employees. There will also be new PMI data from the Institute for Supply Management and international trade figures. Each will be closely watched, with manufacturing activity expected to pick up and we hope better news for exports. Other highlights include news releases for construction spending, factory orders and manufacturing activity in the Dallas Federal Reserve district.

Chad Moutray is the chief economist, National Association of Manufacturers. 

contributions to change in real GDP - jun2014

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Personal Spending Rebounded Slightly in May, Especially for Durable Goods

The Bureau of Economic Analysis said that personal spending increased 0.2 percent in May, an improvement from being essentially flat in April. In particular, durable goods purchases rose 0.7 percent, rebounding from a decline of 0.9 percent the month before. Nondurable goods and service-sector spending increased by 0.2 percent and 0.1 percent, respectively. Overall, the data suggest that consumer spending has largely recovered from winter-related softness in December and January, with personal spending up 1.4 percent since January. On a year-over-year basis, consumers have spent 3.7 percent.

Meanwhile, personal income rose for the fifth consecutive month, up 0.4 percent in May. Through the first five months of 2014, personal incomes have grown 2.0 percent, with year-over-year growth of 3.5 percent. For manufacturers, total wages and salaries increased from $760.8 billion in April to $765.8 billion in May. Manufacturing wages and salaries have moved up from averages of $735.4 billion and $747.4 billion in 2012 and 2013, respectively.

With personal income growth outpacing spending, the savings rate edged up from 4.5 percent to 4.8 percent. This was the highest level since September, and a definite improvement from March’s 4.2 percent pace.

The other closely-watched aspect of this report was the personal consumption expenditure (PCE) deflator, a widely used measure of pricing pressures in the economy. In fact, it is the measure that the Federal Reserve prefers to use when it assesses inflationary tendencies. As we have seen in other indicators, the PCE deflator reflects consumer prices that are rising, with the annual pace rising from 0.8 percent in February to 1.6 percent in April to 1.8 percent in May. Rising food and energy costs were the largest factors in this recent run-up, with monthly increases of 0.6 percent and 0.8 percent, respectively, in May.

Core inflation, which excludes food and energy costs, have grown 1.5 percent over the past 12 months, up from 1.1 percent in February. This suggests that pricing pressures remain below the Fed’s 2 percent target. Yet, it is something that the Fed and other analysts will continue to watch in the coming months.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Personal Spending Dipped Slightly in April Following Two Months of Strong Gains

The Bureau of Economic Analysis said that personal spending decreased 0.1 percent in April, its first decline in 12 months. However, this followed two months of strong gains – up 0.6 percent and 1.0 percent, respectively, in February and March. Indeed, consumer spending increased 1.6 percent year-to-date, with purchases up 4.3 percent. The decline in consumer purchases in April stemmed from reduced spending on durable goods (down 0.5 percent) and services (down 0.1 percent). Spending on nondurable goods rose 0.1 percent for the month.

Meanwhile, personal income growth slowed somewhat, down from 0.5 percent in March to 0.3 percent in April. Nonetheless, it was the fourth straight month of positive growth, with incomes rising 1.6 percent since December and 3.6 percent year-over-year.

For manufacturers, total wages and salaries decreased from $763.8 billion in March to $762.6 billion in April, but this was still higher than the $756.0 billion recorded in February. As such, the spring rebound was mostly sustained, and the longer-term trend remains a positive one. Manufacturing wages and salaries have moved up from averages of $707.1 billion, $735.4 billion, and $747.4 billion in 2011, 2012, and 2013, respectively.

With personal spending down, the savings rate rose from 3.6 percent in March to 4.0 percent in April. Even with the increase, the savings rate has decelerated of late. For instance, the savings rate dropped from an average of 5.3 percent through the first 11 months of 2012 (omitting December because of accelerated payouts due the fiscal cliff) to 4.5 percent in 2013.

Inflationary pressures remain minimal, with prices for core personal consumption expenditures (PCE) up 1.6 percent year-over-year. However, this was up from 0.9 percent in February and 1.1 percent in March, suggesting a pickup in prices.

In April, there acceleration stemmed from higher energy costs (up 0.4 percent). The price of West Texas intermediate crude, for instance, averaged $102.07 a barrel in April, up from $94.62 in January and $100.80 in March. Food prices rose 0.3 percent, slower than the 0.5 percent gain the month before. Core inflation – with excludes food and energy – increased just 0.2 percent, with year-over-year growth of 1.4 percent.

Chad Moutray is the chief economist, National Association of Manufacturers. 

 

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Personal Spending Jumped Higher in March, Building on the Rebound of February

The Bureau of Economic Analysis said that personal spending rose 0.9 percent in March, building on the 0.5 percent rebound of February. This followed weaker consumer spending in December and January, mostly attributable to severe winter weather. Pent-up demand for big ticket items, including autos, helped to drive durable goods spending up 2.6 percent. Nondurable goods and service sector spending were also higher, up 0.8 percent and 0.7 percent, respectively.

Personal spending has grown 4.0 percent since March 2013, its fastest pace in nearly two years. As such, it also represented an acceleration in consumer purchasing activity since last fall. The year-over-year growth rate was 2.9 percent as recently as September, for instance.

Meanwhile, personal income has increased for three straight months, up 0.5 percent in March. Total wage and salary disbursements were up 0.6 percent for the month, or 3.7 percent over the past 12 months. For manufacturers, wages and salaries increased from $758.1 billion to $765.1 billion. Six months ago (in September), wages and salaries in the sector were $750.7 billion, and they have moved up from averages of $707.1 billion and $735.4 billion in 2011 and 2012, respectively.

With spending growth outpacing income, the savings rate declined from 4.2 percent in February to 3.8 percent in March. This was the lowest savings rate since January 2013, and we have generally seen this rate decelerate over much of the past year. For instance, the savings rate dropped from an average of 5.3 percent through the first 11 months of 2012 (omitting December because of accelerated payouts due the fiscal cliff) to 4.5 percent in 2013.

Overall inflationary pressures remain minimal, with prices for core personal consumption expenditures (PCE) up just 1.1 percent year-over-year. Therefore, inflation remains below the Federal Reserve’s 2 percent target rate, which frees the Fed up to pursue its highly accommodative policies.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Monday Economic Report – March 31, 2014

Here is the summary for this week’s Monday Economic Report:

The U.S. economy grew 2.6 percent in the fourth quarter, according to the most recent revision, and for 2013 as a whole, real GDP growth was a rather lackluster 1.9 percent. Consumer spending, business investment and net exports were bright spots in the fourth quarter, with reduced government spending subtracting nearly one percentage point from growth.

Meanwhile, business economists predict real GDP growth of 2.8 percent on average for 2014, with 1.9 percent growth in the current quarter. (My own forecast is marginally higher for both, up 3.0 percent for the year and 2.1 percent for the first quarter of 2014.) Weather-related slowdowns account for the deceleration in activity, particularly for manufacturers, in the current quarter. However, modest growth is expected to resume once temperatures warm up, and we have already begun to see that. The National Association for Business Economics (NABE) Outlook Survey also suggested that the industry should grow 3.2 percent in 2014 and 3.4 percent in 2015, which would indicate a pickup from the current pace.

The latest manufacturing surveys show a rebound in sentiment after softness from December to February. The Markit Flash U.S. Manufacturing Purchasing Managers’ Index (PMI) slowed a bit, down from 57.1 in February to 55.5 in March. Despite the lower figure, new orders and production growth continued to grow relatively strongly, with overall manufacturing activity improved from January’s winter storms. A similar recovery was seen in regional data from the Kansas City Federal Reserve Bank, mirroring the findings from New York and Philadelphia the week before. Still, not everyone has seen improvements yet. The Richmond Federal Reserve reported lackluster growth in sales and output, with weather continuing to “wreak havoc” for many manufacturers. In addition, while new durable goods orders were up a strong 2.2 percent in February, sales growth increased at the less-than-robust rate of just 0.2 percent when transportation orders were excluded.

On the consumer front, the data were mostly positive, but with some caveats. Personal income and spending both increased 0.3 percent in February, with each rising 3.0 percent over the past 12 months. This was a decent pace, but increased purchases of nondurable goods and services mainly fueled spending growth in February. Durable goods spending declined for the third month in a row. In terms of consumer confidence, the two reports out last week were mixed. The Conference Board’s measure of consumer sentiment reached a six-year high; yet, labor market worries dampened enthusiasm for the current environment. Likewise, the University of Michigan and Thomson Reuters reported that consumer sentiment edged lower in March, with employment and income growth also weighing on respondents’ minds. In both surveys, however, Americans are more confident today than in the fall during the government shutdown.

Looking overseas, Markit released preliminary manufacturing PMI data for China and the Eurozone. Chinese manufacturing activity has now contracted for three consecutive months, with March’s pace being the slowest since July. The data mirror other recent indicators, including industrial production, fixed asset investment and retail sales, which have slowed. As such, they all suggest that real GDP might fall below the 7.7 percent rate in the fourth quarter. (First-quarter real GDP for China will be released on April 15.) Meanwhile, European manufacturers have seen expanding activity levels for nine straight months, even as Eurozone PMI values eased slightly in March. New orders and production remain strong in Germany, and, of note, French manufacturers were positive in their sentiment for the first time since June 2011.

This week, the focus will be on the March jobs numbers, which will come out on Friday. The consensus expectation is for nonfarm payroll growth of around 190,000, with manufacturers hiring somewhere near the 12,000 average experienced in the sector since August. In addition, the Institute for Supply Management (ISM) is expected to show a slight rebound in manufacturing PMI activity in its March data, up from 53.2 in February. Other highlights this week include the latest data on construction spending, factory orders and international trade.

Chad Moutray is the chief economist, National Association of Manufacturers.

gdp forecast - mar2014

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Personal Income and Spending Both Rose Modestly in February

The Bureau of Economic Analysis said that personal income and spending both increased by 0.3 percent in February, extending the modest gains of January. After weather-related softness in December, the data have been more favorable in the first two months of 2014. On a year-over-year basis, each of these measures has risen 3.0 percent. This compares to personal income growth of 2.9 percent in 2013, with a 3.2 percent pace for personal spending last year. (If you were to omit December, which was an outlier month due to the fiscal cliff the year before, personal income growth would have also been 3.2 percent.)

The increase in spending in February stemmed from both nondurable goods and services, both of which increased 0.3 percent for the month. Durable goods purchases fell for the third straight month, down 0.2 percent in February. It is likely that poor weather conditions negatively impacted these figures, with other releases showing weak spending for automobiles and other items from December to February.

Meanwhile, wages and salaries were up 0.2 percent in February, rising 3.1 percent over the past 12 months. For manufacturers, there was some softness on the wage front, likely due to weather-related slowdowns. Indeed, manufacturing wages and salaries have fallen from $758.0 billion in November to $754.2 billion in February. Prior to that, compensation had been rising, particularly as activity had picked up. For instance, wages in the sector averaged $707.1 billion, $735.4 billion, and $747.8 billion in 2011, 2012, and 2013, respectively.

The savings rate edged slightly higher, up from 4.2 percent in January to 4.3 percent in February. Still, we have generally seen this rate decelerate over the past year. The savings rate dropped from an average of 5.3 percent through the first 11 months of 2012 to 4.5 percent in 2013.

Overall inflationary pressures remain minimal, with prices for core personal consumption expenditures (PCE) up just 0.9 percent year-over-year, down from 1.2 percent last month. Energy prices had risen in December and January on increased home-heating costs, but these eased a bit in February, down 0.4 percent.  Inflation remains below the Federal Reserve’s 2 percent target rate, which frees the Fed up to pursue its highly accommodative policies. If anything, there are some who argue that disinflationary pressures might be a concern, but that is less true in the U.S. than it is in Europe.

Chad Moutray is the chief economist, National Association of Manufacturers.

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Personal Income and Spending Bounced Back in January, but Goods Purchases Were Lower

The Bureau of Economic Analysis said that personal income and spending bounced back in January after weaknesses seen in December. Consumer spending rose 0.4 percent in January after increasing just 0.1 percent the month before. Year-over-year growth in personal spending also edged higher, up from 3.2 percent to 3.45 percent, its fastest pace since December 2012. Nonetheless, the news was not as good for manufacturers as the headline figure might suggest.

The increase in spending in January stemmed entirely from services, up 0.9 percent for the month. In contrast, durable and nondurable goods spending were both lower, down 0.3 percent and 0.7 percent, respectively. It was the second consecutive monthly decline for durable goods spending, which declined 2.6 percent in December. It is likely that poor weather conditions negatively impacted these figures, with other releases showing weak spending for automobiles and other items over these two months.

Meanwhile, personal income increased 0.3 percent in January, an improvement from being unchanged in December. Total wage and salary disbursements were up 0.2 percent for the month, or 3.6 percent over the past 12 months. For manufacturers, wages and salaries have been essentially flat over the past three months, hovering around $758 billion. The figure has gradually moved higher over the longer-term, however. Six months ago, wages and salaries in the sector were $742.5 billion, and they have moved up from averages of $707.1 billion and $735.4 billion in 2011 and 2012, respectively.

The savings rate remained at 4.3 percent in January for the second straight month, and we have generally seen this rate decelerate over much of the past year. For instance, the savings rate dropped from an average of 5.3 percent through the first 11 months of 2012 (omitting December because of accelerated payouts due the fiscal cliff) to 4.5 percent in 2013.

Overall inflationary pressures remain minimal, with prices for core personal consumption expenditures (PCE) up just 1.1 percent year-over-year. Energy prices were up 0.4 percent in January, or 3.5 percent over the past 12 months, as more Americans needed to heat their homes due to cold weather conditions. Nonetheless, inflation remains below the Federal Reserve’s 2 percent target rate, which frees the Fed up to pursue its highly accommodative policies.

Chad Moutray is the chief economist, National Association of Manufacturers.

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Monday Economic Report – February 3, 2014

Here is the summary for this week’s Monday Economic Report:

While equity markets around the world continue to worry about the emerging markets, the economic news in the United States has been more encouraging. In particular, we learned that real GDP grew at a relatively strong pace in the fourth quarter, up 3.2 percent. Robust growth in consumer spending and exports boosted the nation’s output, with the main drag being federal government spending. Note that this was the quarter that included the partial government shutdown, which might explain part of that decrease, with defense and nondefense government spending lower. Yet, the key takeaway from this data was the strength of the U.S. economy as we ended 2013, with real GDP increasing 3.7 percent at the annual rate in the second half of the year.

At the same time, it is worth noting that real GDP rose a more-disappointing 1.9 percent for 2013 as a whole, below the 2.8 percent figure seen in 2012. Likewise, personal income growth also decelerated, from 4.2 percent in 2012 to 2.8 percent in 2013. Personal incomes remained flat in general for the month. Nonetheless, total wages and salaries in the manufacturing sector increased from $760.9 billion in November to $763.6 billion in December, with annual growth of 1.9 percent. Meanwhile, personal spending in December rose 0.4 percent, extending the 0.6 percent gain observed in November. While the monthly increase resulted from a huge jump in nondurable goods spending, the annual data reflected larger increases for durable goods (7.1 percent versus 2.1 percent). In other developments, consumer confidence appears to have rebounded after falling during the government shutdown, as reflected in both Conference Board and University of Michigan reports.

Some of the other reports for the manufacturing sector were mixed. Regional sentiment surveys, such as those from the Dallas and Richmond Federal Reserve Banks, continue to show expanding levels of sales and production. Moreover, respondents remain mostly upbeat in their outlook for the next six months. In contrast, new durable goods orders dipped 4.3 percent in December. Moreover, even excluding the highly-volatile transportation sector, new orders would have fallen 1.6 percent, suggesting broader weaknesses beyond aircraft and motor vehicles. Shipments of durable goods were also lower. Weather could have been a factor, as well as the timing of some orders due to the holidays. As such, it will be interesting to see if upcoming data reveals the December data as an outlier.

For its part, the Federal Open Market Committee (FOMC) of the Federal Reserve stressed the positive, noting that “growth in economic activity picked up in recent quarters.” As expected, the FOMC further reduced its purchases of long-term and mortgage-backed securities from $75 billion each month to $65 billion. It had begun to taper these asset purchases at its December meeting. This marked the last meeting chaired by Ben Bernanke, as Janet Yellen became the chair of the Federal Reserve Board on February 1. The FOMC will continue to maintain its “highly accommodative” monetary policies for the foreseeable future, with short-term interest rates remaining effectively zero beyond when the economy reaches 6.5 percent. One notable element in the FOMC statement was that none of the participants dissented this time around. While the committee does have new participants for 2014, this was the first statement to not have a dissention since the June 2011 meeting.

This week, the focus will return to the labor market with the release of January employment numbers on Friday. Following the lackluster nonfarm payroll growth of December, the consensus is for 175,000 net new workers to have been added in January. For manufacturers, we will be looking to see if we can extend the strong hiring gains observed from August to December, adding an average of 16,000 jobs per month during that five-month period. Another highlight will be the December trade data, which will allow us to see if manufacturers were able to improve upon the mostly discouraging export figures that we have seen so far for 2013. Other economic indicators to watch include new data on construction spending, consumer credit, the Institute for Supply Management’s purchasing managers’ index, new factory orders and productivity.

Chad Moutray is the chief economist, National Association of Manufacturers.

annual real gdp growth - feb2014

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Personal Spending Rose Modestly in December, But Incomes Were Flat

Personal incomes were unchanged in December, according to the latest data from the Bureau of Economic Analysis. For the fourth quarter, incomes were up just marginally, increasing a very modest 0.1 percent. For the year of 2013 as a whole, personal incomes rose 2.8 percent, below the 4.2 percent gain observed in 2012.

For manufacturers, total wages and salaries increased from $760.9 billion in November to $763.6 billion in December. Average manufacturing wages and salaries for 2013 were $749.3 billion, up 1.9 percent from $735.4 billion in 2012.

Meanwhile, personal spending rose 0.4 percent in December, extending the 0.6 percent increase seen in November. Overall, consumers spent 1.1 percent more in the fourth quarter, with a gain of 2.0 percent for all of 2013. This was slightly below the 2.2 percent increase observed in 2012.

December’s higher personal spending figure stemmed largely from a significant jump in nondurable goods activity, up 1.5 percent for the month. In contrast, personal durable goods spending declined 1.8 percent, offsetting the 1.8 percent jump in November. Looking at the entire year, however, durable goods spending growth outpaced that for nondurable goods, 7.1 percent to 2.1 percent.

With personal incomes flat for the month, the savings rate fell from 4.3 percent in November to 3.9 percent in December. This was the lowest rate in 11 months, and it was the third consecutive monthly decrease, down from 5.1 percent in September.

The other notable item to report from this release was the personal consumption expenditure (PCE) data, which looks at consumer inflation. The Federal Reserve prefers this measure when looking at pricing pressures. Year-over-year growth in the PCE has edged somewhat higher over the past couple months, up from 0.7 percent in October to 0.9 percent in November to 1.1 percent in December. Yet, this still suggests that inflation remains largely in-check, at least for now. Core inflation — which excludes food and energy — has risen just 1.2 percent over the past year, which remains well below the Fed’s stated target of 2 percent.

Chad Moutray is the chief economist, National Association of Manufacturers.

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November Personal Spending Increased Modestly Led by Strong Growth in Durable Goods

The Bureau of Economic Analysis said that personal spending growth grew 0.5 percent in November, extending the 0.4 percent gain seen in October. Consumer spending has increased 3.5 percent over the past 12 months, its fastest pace so far in 2013 and an improvement from the 2.9 percent year-over-year rate in September. Nonetheless, it is clear that personal spending growth has decelerated from the 4.1 percent pace average of 2012 to the 3.1 percent average year-to-date in 2013.

Looking specifically at the November data, the growth in personal goods spending stemmed from an increase in durable goods expenditures. Spending on durable goods increased from an annualized $1.282 trillion in October to $1.307 trillion in November. Meanwhile, purchases of nondurable goods declined in the month from $2.667 trillion to $2.657 trillion.

Both durable and nondurable goods spending continue to increase over a longer term. Six months ago (May), for instance, durable and nondurable goods purchases were $1.255 trillion and $2.585 trillion, respectively.

Meanwhile, personal income rebounded in November, rising by 0.2 percent after falling 0.1 percent in November. Much of October’s decrease had been attributable to a sharp falloff in farm proprietors’ income, which was still down in November. But, it was offset by stronger growth in wages and salaries, which increased 0.4 percent for the month. For manufacturers, total wages and salaries rose from $754.3 billion to $759.1 billion. This figure has gradually moved higher. Six months ago, wages and salaries in the sector were $744.8 billion, and they moved steadily higher from the averages of $707.1 billion and $735.4 billion in 2011 and 2012, respectively.

Perhaps disappointingly, the year-over-year pace of personal income continues to decelerate, down from 3.4 percent in October to 2.3 percent in November. In contrast to personal spending, this was the lowest annual pace of the year. Through the first 11 months of 2013, the annual pace has averaged 3.2 percent, down from the 4.2 percent rate experienced in all of 2012.

With personal spending outstripping personal income, the savings rate has fallen in each of the past two months, down from 5.1 percent in September to 4.5 percent in October to 4.2 percent in November.

Overall inflationary pressures remain minimal, with prices for personal consumption expenditures (PCE) unchanged for the second month in a row. The year-over-year rate of PCE growth was just 0.9 percent, and when you exclude food and energy, the annual rate of core PCE growth was 1.1 percent. Much as we have seen in recent consumer and producer price data, inflation remains below the Federal Reserve’s 2 percent target rate, which frees the Fed up to pursue its highly accommodative policies.

Chad Moutray is the chief economist, National Association of Manufacturers.

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