January Personal Spending was lower than expected while Personal Income increased

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Published Date 2/28/2025

At 6 am ET this morning the 10 year note yield traded down 3 bps to 4.23% from yesterday’s close, by 8:15 am the note and MBSs were unchanged from yesterday. At 8:30 am the January PCE inflation report.

January PCE overall month/month expected +0.4% increased 0.3% unchanged from December, year/year overall PCE +2.5% as expected and down from 2.6% in December. Prices for goods increased 0.5%, following a 0.1% rise in December and prices for services rose at a slower 0.2%, after a 0.4% gain in the previous month. The core PCE (ex-food and energy) the more compelling data, month/month +0.3% as expected, year/year core +2.6% as expected and down from 2.8%. Food prices went up 0.3%, higher than 0.2% in December while cost of energy eased (1.3% versus 2.4%); prices for goods increased 0.5%, following a 0.1% rise in December and prices for services rose at a slower 0.2%, after a 0.4% gain in December.

January personal income, thought to be +0.3% month/month exploded to +0.9% to $25.345 trillion; compensation of employees rose by 0.4% from the previous month amid robust increases in wages (0.4%) and supplement to wages (0.6%). Additionally, personal income receipts on assets soared by 1.1% as personal dividend income (1.7%) outweighed the rise in interest income (0.4%), aligned with the surges in benchmark equity markets in the period. In the meantime, income also rose sharply through rental income of persons with capital consumption adjustment (1.4%) and proprietors’ income with inventory valuation and capital consumption adjustments (1.5%). Personal spending was expected +0.2%, declined 0.2%. The first decline in consumer spending since March 2023, primarily driven by a drop in spending on goods (-1.2% vs. 1.2% in December). Spending on durable goods plummeted by 3.0% (vs. 1.3% in December), while spending on nondurable goods edged down by 0.2% (vs. 1.2% in December). Additionally, spending on services increased at a slower pace of 0.3%, compared to 0.7% the previous month.

The preliminary January trade deficit thought to -$116.0B increased to a record -$153.3B in January. Imports surged 11.9% to $325.4B, driven primarily by sharp increases in purchases of industrial supplies (+32.7%), consumer goods (+8.3%), and capital goods (+4.8%). Meanwhile, exports rose 2% to $172.2B, boosted by higher sales of capital goods (+10.9%) and consumer goods (+8%).

At 9:30 am the DJIA opened +83 after trading over 200 points in pre-opening trade, NASDAQ at 9:30 am -56, S&P +2. 10 year at 9:30 am 4.24% -2 bp. FNMA 6.0 30 year coupon at 9:30 am +7 bps from yesterday and +11 bp from 9:30 am yesterday.

At 9:45 am the February Chicago purchasing managers index, expected at 41.0 from 39.5 in January, the index reported at 45.5.

Inflation cooling and the equity market remains under pressure. The 10 year note, the lowest since last December. Inflation was right on forecasts as the outlook is looking better. On February 19th, the 10 year note traded at 4.56%, now 4.24%.

Source: TBWS

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