Personal Incomes, Spending Rise More Than Estimates, PCE Core at Estimates, Chicago PMI Contracts, Consumer Confidence Inches Above Estimates

- Personal Income for January rose .3% versus estimates of a .2% increase and a .5% gain in December.

- Personal Spending for January rose .4% versus estimates of a .2% increase and an upwardly revised .3% gain in December.

- PCE Core for January rose .3% versus estimates of a .3% gain and a .2% increase in December.

- The Chicago Purchasing Manager for February fell to 44.5 versus estimates of 49.5 and a reading of 51.5 in January.

- The final Univ. of Mich. Consumer Confidence reading for February rose to 70.8 versus estimates of 70.0 and prior estimates of 69.6.

BOTTOM LINE: Consumer spending in the US rose more than forecast in January, Bloomberg reported. The Fed’s favorite inflation gauge, the Core PCE, rose 2.2% from year ago levels. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 8 basis points today to 2.39%. It has declined 17 basis points from its highs of two days ago at 2.56%. Personal incomes rose 4.9% from year ago levels. Spending on services, which account for about 60% of total spending, rose .4%. Private/Household Debt as a % of personal income continued its recent downtrend, falling to 21.1% from a high of 22.3% in August 2005. Consumers will likely take on more debt in the short term, which will help keep spending from slowing too much. Incomes will likely remain relatively healthy over the intermediate-term and inflation should decelerate meaningfully.

The Chicago Purchasing Manager Index fell more than economists expected in February, Bloomberg reported. The Prices Paid component fell to 79.4 from 81.7 the prior month. The New Orders component of the index rose to 48.8 from 44.7 the prior month. The Inventories component fell to 46.0 from 51.1 the prior month. I expect the Chicago PMI to bounce back next month on inventory rebuilding.

Consumer confidence fell less in February than previously though, Bloomberg reported. The Expectations component of the index fell to 62.4 from 68.1 the prior month. The Current Conditions component fell to 83.8 from 94.4 the prior month. Fed fund futures now imply a 44.0% chance for a 50 basis point cut at the March 18^th meeting. The odds for a 75 basis point cut are up to 56.0% today from 36.0% yesterday. As I said earlier, I suspect consumer confidence gauges are making major lows right now.