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  • Alex Haseldine

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Real incomes rose in January for the 7th consecutive month following a sustained decline in the cost of essentials (food, housing and energy).

As a proportion of disposable income, US consumers spent 1.1% less on essentials in January than in June. (Figure 1).

During the same time period, our Real Earned Income Proxy (the product of Average Hourly Earnings, Hours Worked and Nonfarm Payrolls) has risen by 1.2%. (Figure 2). The most recent tick up has been the result of more hours worked and total employment, while Hourly Earnings declined on the month by 0.2%. (Figures 3 and 4).

Real discretionary disposable income ticked up, rising 3.2% since June last year. (Figure 5).

As the cost pressures of essentials started to ease, consumers began to rebuild savings. Since June 2022, real savings have increased by 25% from their lows (Figure 6). The savings rate also increased by 2% in this time period. The average savings rate since 1993 has been 6.5%. This is further evidence that consumers are becoming more value conscious.

Overall consumption remains at trend, while goods and services spending continue to mean revert. January proved a strong month for Goods demand. (Figure 7, 8).

The price indices for Services, Goods and Core PCE rose by 5.7%, 4.7% and 4.7% respectively.

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