The Bureau of Economic Analysis said that personal spending slowed in January after the strong gains in December. Personal consumption expenditures rose 0.2 percent in January, off from the more robust pace of 0.5 percent in December. In this latest report, weaker durable goods sales (down 0.3 percent), including motor vehicles, held back spending, whereas nondurable goods spending increased (up 1.0 percent). In general, Americans have been more willing to open their pocketbooks in recent months relative to a more cautious approach at this time last year. Along those lines, personal spending grew 4.7 percent year-over-year in January, its highest level since November 2014.
With the easing in spending, the savings rate edged higher, up from 5.4 percent in December to 5.5 percent in January. To illustrate the increased willingness to spend relative to one year ago, the savings rate was 6.2 percent in January 2016.
Meanwhile, personal income grew at its fastest rate in three months, up 0.4 percent in January. On a year-over-year basis, personal incomes have continued to increase at a decent clip, up 4.0 percent since January 2016. At the same time, total manufacturing wages and salaries increased from $844.5 billion in December to $845.1 billion in January. This continues a steady trend upward for manufacturing compensation, with wages and salaries in the sector averaging $806.7 billion and $829.3 billion in 2015 and 2016, respectively.
In other news, the personal consumption expenditure (PCE) deflator increased 0.4 percent in January, the fastest monthly gain in nearly four years. The pickup in inflation was primarily due to higher energy costs, up 4.2 percent. Nonetheless, core inflation, which excludes food and energy, rose 0.3 percent in January. The PCE deflator increased 1.9 percent year-over-year in January, up from 1.6 percent in December and at its highest level since October 2012. Yet, even with accelerated pressures, core price growth remains mostly under control for now, with core inflation up 1.7 percent over the past 12 months.