Personal Income +0.4

Personal Spending +0.2%

The largest component of personal income, wages and salaries, increased 0.5% in January after increasing 0.4% in December.   Real consumer spending, adjusted for price changes, decreased 0.1% in January after increasing 0.2% in December.  Spending on durable goods decreased 1.6% in January after increasing 0.6% in December.   In 2017, real consumer spending increased 2.7%, which was the same increase as in 2016. 

Historically low savings is a concern, but some of that is offset by the wealth effect of higher stock market, higher housing values and better wages.   Personal savings rate increased to 3.2% in January compared to 2.5% in December.  This is the highest reading since August 2017, but well off historic averages.  Personal Savings in the United States averaged 8.27% from 1959 until 2017, reaching an all-time high of 17% in May of 1975 and a record low of 1.90% in July of 2005.

The PCE Core inflation reading increased at the fast pace since January 2017, +0.3%, but is only 1.5%, which remains well below the Fed’s desired 2.0% inflation target.

This dovetails nicely with comments from Fed Chairman Powell on the lack of “significant” wage inflation suggesting there is still room for more employment and higher wages.  Initially, his observation sent the market higher, until the tariff news.

The Trump administration announced moves to implement tariffs on industrial metals.  The goal is to curb Chinese dumping by applying a 25% tariff on steel and 10% on aluminum.  These tariffs could be implemented as early as next week.

However, tariffs, which are essentially an import tax, may make the price of doing business in the US higher and could impede growth.  And while this may be good for the steel and aluminum business, tariffs may not be the best way to help workers. I believe it will have no real impact on economy, and there will be no trade war. 

The market, doesn’t like this tariff news, and is selling off hard. The bright spots are steel and aluminum stocks.  The steel Etf, SLX, is up 2.2% and AK Steel (AKS) is trading up 11.7%.

At midday, decliners outpace advancers 1567/1307 on the NYSE and 1293/1122 on the Nasdaq.