Source: Economics Group of Wells Fargo Bank, N.A.
Summary
Inflation rose at only a mild pace in January and income rose more than twice the expected amount. But inflation-adjusted spending dropped half a percentage point, the biggest monthly retrenchment in almost four years. A pullback in autos and other goods was mostly to blame.
Sharp Pullback in Goods Spending
January’s personal income and spending report was full of surprises. Income came in hot growing 0.9% which was more than double the expected gain of 0.4%. Spending fell on both a real and nominal basis. The decline is the first in 22 months though it does come on the heels of upward revisions to December data.
We have been cautioning about some potential pull-forward in goods spending as consumers try to squeeze in big-ticket purchases before tariffs go into effect. At some point we feared there would be payback. January is sooner than we would have expected to see it. Yet, how else to explain the fact that among the categories posting a decline in January seven out of the top eight decliners were goods categories.