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Household income in the US rose 0.6% in January, the largest increase in 11 months, while spending rose 0.2%, according to the Commerce Department’s report on Friday. Meanwhile, the Federal Reserve’s preferred metric for gauging inflation rose 1.6% in the 12 months through January, falling short of the Fed’s target range of 2%.

Key Takeaways

• Household spending (PCE) rose 0.2% as expected, while personal income rose 0.6% vs. 0.4% expected.
• Inflation rose 0.1% last month and 1.7% in the 12 months through January.
• The data points to ongoing economic stability within the US.

The latest reports of strong gains in household income along with moderate increases in spending indicate that the US economy continues to sustain its ongoing period of expansion. Consumer spending is crucial to economic growth, accounting for two-thirds of the US economy.

The Commerce Department reported the largest gain in income in almost a year with 0.6% growth vs. just 0.4% expected, and the solid gains in income have helped support in-line spending. Spending fell for many goods, but rose in the services sector, such as healthcare with 0.3% gains. The rise in spending came at a slower pace than the month before, where spending was revised upward to 0.4%.

First Cut: January personal income up on gains in wages and salaries, spending up on durables and services, PCE deflator starts to inch uwpard. https://t.co/XFOvhIPzih pic.twitter.com/GGHXDa8uVF

— Whetstone Analysis LLC (@AnalysisLlc) February 28, 2020

The price index for personal-consumption expenditures, the Fed’s measure for tracking inflation, rose 0.1% last month and 1.7% annually. The annual gains have ticked upward in the last two months, bolstered by rising energy costs compared to this time last year.

Friday’s data reflects income, spending and prices measured in January, before heightened concerns about the coronavirus caused U.S. officials to issue warnings.

Gains in income and spending came against the backdrop of still-modest inflation pressures.

January Inflation

Core personal-consumption expenditures, the Federal Reserve’s preferred inflation gauge, rose 0.1% on the month and was up 1.6% from a year earlier. Core PCE came in at 1.5% in December and 1.3% in November.

While rising, the metric is still falling short of the Fed’s 2% target, and the recent gains may not be sustainable. The ongoing coronavirus has impacted global supply chains and reduced global demand for oil for the time being, and this may pull inflation down for February. Wages and salaries rose 0.5% last month with an increase in minimum wage throughout 21 states along with a tightening labor market where skilled workers are in short supply.

Market Reaction

Gold prices have taken losses today, remaining below $1,600. Spot gold last traded at $1,587.86/oz, down -3.19% with a high of $1,648.86/oz and a low of $1,587.86/oz. Despite heavy losses in the global equities markets, gold has faced selling pressure throughout today’s session. It’s possible that the strong price increases seen over the last few days have prompted some traders to sell in order to realize their gains.

With news of the coronavirus spreading to yet more countries around the world, the threat of the outbreak is present and escalating, placing further pressure on the global markets. This should, in theory, create bullish sentiment for gold in the mid-term.