Personal Incomes/Spending Accelerate, Inflation Tame, Job Market Healthy, Pending Home Sales Surge, Manufacturing Decelerates

- Personal Income for December rose .5% versus estimates of a .5% increase and a .3% gain in November.
- Personal Spending for December rose .7% versus estimates of a .7% gain and a .5% increase in November.
- The PCE Core for December rose .1% versus estimates of a .2% increase and an unch. reading in November.
- Initial Jobless Claims fell to 307K versus estimates of 315K and 327K the prior week.
- Continuing Claims rose to 2553K versus estimates of 2469K and 2482K prior.
- Pending Home Sales for December rose 4.9% versus estimates of .9% and a -.3% decline in November.
- ISM Manufacturing for January fell to 49.3 versus estimates of 51.7 and a reading of 47.5 in December.
- ISM Prices Paid for January rose to 53.0 versus estimates of 47.0 and 47.5 in December.

BOTTOM LINE: Personal Spending in the US jumped in December by the most in five months and a measure of inflation watched by the Fed rose less than forecast, Bloomberg said. I suspect spending will rise back to above-average rates, while incomes continue to outpace inflation over the intermediate-term.

The number of Americans filing first-time claims for state unemployment benefits fell more than forecast last week, suggesting the labor market remain firm, Bloomberg said. The four-week moving-average fell to 304,750 from 309,250. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at 1.9%. I expect the unemployment rate to average a historically low 4.5% for the year as more hiring by technology, healthcare and financial companies offsets real estate-related job weakness.

More Americans signed contracts to buy previously-owned homes in December, adding to evidence the housing market is improving, Bloomberg reported. This index is considered a leading indicator of sales. I continue to believe that housing is stabilizing at relatively high levels as inventories plunge with good demand, thus putting a floor under prices.

Manufacturing in the US unexpectedly contracted in January, Bloomberg reported. The prices paid component rose to 53 versus 47.5 the prior month. Crude oil prices have declined in recent weeks. The average price of a barrel of crude traded on the NY Merc was $54.35 last month versus $62.09 in December. The inventory component of the index fell to 39.9 from 48.5, the largest decline since 1984. Manufacturing will likely remain a drag on the economy during 1Q, however I expect it to improve meaningfully during the second half of the year as inventories are rebuilt.