December Sees 0.2% Increase in Core PCE Price Index, 2.9% Rise Over Previous Year

A 0.3% increase in income, a 0.7% surge in spending, and a consistent 0.2% rise in Core PCE indicate strong economic growth and confidence in December.

Key Insights

• Personal income rises by 0.3%, in line with predictions.
• Consumer spending surpasses projections, showing a 0.7% increase.
• The Core PCE Price Index meets expectations, rising by 0.2%.

Overview

In December, the U.S. Economic Landscape: Key Financial Indicators

Personal and Disposable Income

Personal Income: In December, personal income increased by $60.0 billion, reflecting a 0.3% rise, closely aligning with market expectations.

Disposable Personal Income (DPI): DPI, which factors in personal income after taxes, also grew by $51.8 billion, showing a similar 0.3% growth rate. This increase was mainly driven by higher compensation and personal interest income.

Consumer Spending and Sector Insights

• Personal Spending Surge: Consumer spending witnessed a significant surge, with a $133.9 billion increase, equivalent to a 0.7% rise, surpassing the anticipated 0.5% increase.

• Sectoral Contributions: The surge in spending was propelled by a $75.6 billion increase in service spending and a $58.4 billion uptick in goods spending.

• Service Sector Leaders: Financial services, healthcare, and recreation services were the frontrunners in driving the increase in service spending.

• Goods Sector Highlights: The goods sector received significant contributions from motor vehicles, prescription drugs, and gasoline.

Savings and Expenditures

Personal Outlays: Personal outlays, including personal consumption expenditures (PCE), interest payments, and transfer payments, increased by $134.7 billion.

Savings Snapshot: Despite increased spending, personal savings amounted to $766.7 billion, with a saving rate of 3.7% of DPI.

Price Index Movements

PCE Price Index: The PCE price index, a crucial measure of inflation, rose by 0.2%, in line with expectations. This increase featured a 0.2% decrease in goods prices and a 0.3% rise in service prices.

Food and Energy: Food prices increased by 0.1%, while energy prices saw a 0.3% uptick. Excluding food and energy, the core PCE price index also increased by 0.2%.

Year-Over-Year Price Changes

PCE Price Index Comparison: Compared to the same month in the previous year, the PCE price index increased by 2.6%. Notably, service prices saw a significant 3.9% increase, while goods prices remained relatively stable.

Food and Energy Trends: Food prices rose by 1.5%, but energy prices declined by 2.2%. The core PCE price index, excluding food and energy, climbed by 2.9% from the previous year.

Real PCE Adjustments

Real PCE Growth: In real terms, personal consumption expenditures (PCE) increased by 0.5%, with goods spending up by 1.1% and services by 0.3%.

Sectoral Influences: The rise in goods spending was largely attributed to recreational goods and vehicles, while healthcare and financial services led the increase in services.

Revisions and Updates

Economic Data Revisions: The Bureau of Economic Analysis (BEA) provided revised estimates for October and November, offering a more comprehensive view of economic trends in the final quarter of the year.

Summary

Economic Snapshot: December's economic data portrays a robust consumer spending environment, moderate income growth, and controlled inflation, indicating the resilience of the U.S. economy as it heads into the new year.