Personal income edged up from a +0.3% increase in November to +0.4% (+4.1% Y/Y) in December and December’s increase in after-tax disposable personal income (DPI) matched both November and October at +0.3% (+3.9% Y/Y). Personal consumption expenditures (PCE) were up +0.4% (+4.6% Y/Y), slowing from November’s upwardly revised +0.8% rate, while the personal saving rate as a percent of DPI dropped by -0.1% to +2.4% (+3.4%Y/Y), for the lowest saving rate since September 2005, with overall savings dropping to the lowest level since December 2007 at $351.6 billion. Monthly PCE inflation dropped to +0.1% (+1.7% Y/Y), although the core PCE price index, which excludes food and energy, rose slightly at +0.2%, holding yearly core inflation steady at +1.5%.

Citing strengthening labor market conditions, a solid rise in the rate of economic activity, and inflation below their 2.0% target rate, the Federal Reserve Open Market Committee (FOMC) voted unanimously to maintain the target federal funds rate at 1-1/4% - 1-1/2%. The FOMC statement noted that while inflation remains low, market based measures of inflation have increased in recent months and they reaffirmed their expectations that longer-term inflation would trend toward their target rate. In a separate statement, the FOMC lowered their consensus estimate for the longer run normal rate of unemployment from 4.8% to 4.6%.

There were 200,000 new jobs created in January, exceeding analyst's expectations, and yearly earnings increased +2.9% for the strongest increase since June 2009. The unemployment rate (4.1%), workforce participation rate (62.7%), and increase in average hourly earnings (+0.3% M/M) remained unchanged from December while the average workweek dropped from 34.5 hours to 34.3 hours. Jobs were created in construction (+36,000, including +26,000 specialty trade contractors), food services (+31,000), health care (+21,000), and manufacturing (+15,000), while employment in other sectors changed little. The alternate U-6 unemployment rate rose +0.1% to 8.2%, with the numbers of workers who were long-term unemployed, part-time for economic reasons, marginally attached, or discouraged remaining substantially unchanged compared to January 2017.