Preview: US Personal Spending & Incomes

Release: Personal Spending m/m (November) Consensus Forecast: 0.3% Previous: 0.1% Release: Personal Incomes m/m Consensus Forecast: 0.3% Previous: 0.4% Date/Time: 12/23/11 at 8:30AM ET (13:30 GMT) GDP Data Shows Personal Consumption Weaker Than Earlier Expected In today's GDP release we saw personal consumption revised down to a 1.2% annualized rate from the second revision's 1.7% estimate. It shows that consumer spending - the primary driver in the US economy - was a bit weaker then originally thought. Still it's an improvement from the 0.5% increase in personal consumption we saw in the second quarter. The personal spending figures for November therefore will give us a another look at this crucial part of the economy and this time for the middle of the fourth quarter as it is for November. Retail sales for November came in weaker than expected showing a 0.1% gain in the headline reading which disappointed expectations. Therefore, if we have a gain in personal spending it will come from contributions other than retail sales - which make up about 30% of personal spending indicator.  What to Expect From the Report The consensus forecast is for 0.3% climb in personal spending which would be improvement from October 0.1% reading and would be close to the 0.4% increases we saw in September and July. At the same time personal incomes are expected to climb 0.3%. We had talked about how there has been a disconnect recently between consumer spending in the US and wages with the former rising while the latter stagnates and we notice that in the annual rates in spending and incomes in the above charts. On the right we have the same theme using retail sales and average weekly earnings. Higher spending with weak wage increases is an unsustainable situation and therefore it will be good to see incomes matching or exceeding spending as they did in October when incomes rose 0.4%. At the same time we are seeing the labor market improving as jobless claims hit a fresh three-year low suggesting that non-farm payrolls in December. We also saw another rise in the UMich consumer sentiment index, increasing more than expected in today's session to 69.9. With very thin liquidity conditions and the Christmas weekend upon us the impact on the market from the spending report may be minimal but it will give us a good indication for whether the US economy which has seen a pickup in activity over the last few months can expand that momentum. The recent run of better-than-expected data and improvement in the labor market may mean that the Federal Reserve holds off on any stimulative measures in the early part of 2012 unless we have a big shock from the European sovereign debt crisis. Therefore better-than-expected release should help to bolster risk sentiment and help to extend the rally we had in the S&P 500 this week, while a reading that comes in softer than expected could act to limit some of the positive optimism for the US economy. A stronger reading would be a positive for higher-yielding commodity linked currencies like the Australian, New Zealand, and Canadian dollars against safe haven currencies like the Japanese yen and US dollar, but also the European “higher yielders” the euro and pound.