We've just had the latest batch of numbers from the Commerce Department on what's happening at the detailed level in the US economy. All of this will of course be grist to the Federal Reserve's decision making mill as they try to decide what to do about interest rates. The general findings are that US wages rose last month, that inflation was muted, consumer spending fell marginally and the savings rate rose. That last being an "of course" after the first three.
Here's one report on the numbers:
Consumer purchases adjusted for inflation rose in January, a sign the plunge in gasoline prices is helping boost the biggest part of the U.S. economy.
The 0.3 percent increase followed a 0.1 percent drop the prior month, a Commerce Department report showed Monday in Washington. So-called nominal spending, which doesn’t take into account changes in price, declined 0.2 percent, more than estimated, while incomes grew 0.3 percent for a second month.
We've also a little more information elsewhere:
Income increased 0.3 percent after a similar rise in December. Income at the disposal of households after accounting for inflation advanced 0.9 percent, the largest increase since December 2012. The saving rate increased to 5.5 percent, the highest since December 2012.
Inflation as a whole was low but that's partly the effects of the oil price crash still working through into gasoliine prices. We all expect that to end in the next month or two.
Excluding food and energy, the so-called core PCE price index increased 1.3 percent in the 12 months through January.
We're thus not far off the Fed's 2% inflation target. And with rising wages and falling unemployment we're going to get to the point, sooner or later, where they simply will raise interest rates as a result.
As to that incresae in the savings rate. Well, that's really because there's no place else for the money to go. If inflation is low then we don't need to spend ever more of our money just trying to keep up with the rising prices of goods. And if wages are rising in both real and nominal terms then we've got more money in our pockets. And perhaps we might go and spend that money just because we've got it: but we didn't as consumer expenditure, including those oil prices, fell. So, we've got more money that isn't being inflated away and we're not spending it: obviously savings must be increasing because that's the final balancing item in our equation.
All in all it's a pleasing set of numbers. Sure, we'd like wages growth to be stronger: that is the point of having this economy thing in the first place, so that the average guy n' gal gets more in their pocket to benefit their lifestyles. But at least we've got all of the numbers working in the right direction. Muted inflation, rising real wages and that rising savings rate. And of course it's precisely because all these numbers are now pointing in the right direction that we're likely to see the Feds raising interest rates. Their job is, after all, to take away the punchbowl just as the party gets going.
