Core PCE Price Index Climbs 0.2% in December, Up 2.9% Year-Over-Year

Key Points

• Personal income increases by 0.3%, aligning with estimates.
• Consumer spending exceeds expectations, rising 0.7%.
• Core PCE Price Index matches forecast, up 0.2%.

Overview

In December, the U.S. economy witnessed notable movements in key financial indicators, as reported by the Bureau of Economic Analysis. Personal income saw a moderate increase, while consumer spending surged, reflecting a dynamic economic landscape.

Personal Income and Disposable Income

Personal income rose by $60.0 billion, a 0.3% increase, aligning closely with market estimates. Disposable personal income (DPI), which accounts for personal income minus taxes, also increased by $51.8 billion, marking a similar growth rate of 0.3%. This increment primarily stemmed from rises in compensation and personal interest income.

Consumer Spending and Sectoral Insights

Personal spending experienced a significant jump, increasing by $133.9 billion or 0.7%, surpassing the estimated 0.5% rise. This increase was driven by a $75.6 billion rise in service spending and a $58.4 billion uptick in goods spending. Notably, financial services, healthcare, and recreation services led the surge in service spending, while the goods sector saw major contributions from motor vehicles, prescription drugs, and gasoline.

Savings and Outlays

Personal outlays, encompassing PCE, interest payments, and transfer payments, rose by $134.7 billion. Despite the increase in spending, personal saving stood at $766.7 billion, with the saving rate at 3.7% of DPI.

Price Index Movements

The PCE price index, a key inflation measure, increased by 0.2%, in line with the estimated figure. This rise was characterized by a 0.2% decrease in goods prices and a 0.3% increase in service prices. Food prices edged up by 0.1%, while energy prices saw a 0.3% rise. Excluding food and energy, the core PCE price index also increased by 0.2%.

Year-Over-Year Price Changes

Compared to the same month last year, the PCE price index rose by 2.6%. Service prices saw a significant increase of 3.9%, while goods prices remained nearly unchanged. Food prices increased 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

In real terms, PCE increased by 0.5%, with goods spending up by 1.1% and services by 0.3%. The rise in goods spending was largely attributed to recreational goods and vehicles, while health care and financial services led the increase in services.

Revisions and Updates

The BEA also provided revised estimates for October and November, offering a more comprehensive view of the economic trends in the closing quarter of the year.

In summary, December’s economic data reflects a robust consumer spending environment, moderate income growth, and controlled inflation, painting a picture of a resilient U.S. economy heading into the new year.