Real personal consumption expenditures (PCE) fell -0.1% m/m in January, perhaps due to cold weather. More importantly, as a result of tax reform personal taxes fell -3.3% m/m, resulting in a steep +0.6% m/m gain in disposable personal income to +2.3% y/y; just six months ago it had been only +1.1% y/y. More income provides fuel for spending, and it pushed the savings rate up from 2.5% to 3.2%. The ISM manufacturing index rose +1.7 points to 60.8, the highest in almost 14 years. The report mirrored four strong Fed surveys. The ISM services index slipped -0.4 to a still strong 59.5. New Fed Chair Powell was slightly more hawkish in his first testimony to Congress, making three hikes this year a virtual certainty, and a fourth a possibility. President Trump announced import tariffs of 25% on steel and 10% on aluminum, sparking loud protests from business groups, and retaliatory threats from trading partners. If the tariffs are actually enforced, domestic producers of the metals will win, but manufacturers and consumers will lose due to price increases and retaliation from trading partners.
