Wells Fargo said in a note Thursday that it expects the surges in inflation and personal income to be short-lived.
Data reported today revealed that personal income growth surprised to the upside in January, coming in at 1% month-on-month. However, Wells Fargo notes that after adjusting for inflation, real spending fell 0.1%. The reported personal spending number was 0.2% month-on-month in January.
"The Fed's preferred gauge of inflation, the core PCE deflator, notched its biggest monthly gain since January 2023," Wells Fargo wrote.
"The increase in real spending for December got a bump up to 0.6% in the revisions, which helps explain the upward revision to Q4 real personal consumption expenditures in yesterday's GDP revisions, but on balance today's report presents some downside risk to Q1 consumer spending estimates," analysts added.
The firm believes the composition of spending in January represents a pivot back toward non-discretionary categories - particularly services categories - at the expense of outlays in recreational categories.
However, Wells Fargo says the real eye-catcher in the data was the 1% jump in personal income. This was the largest gain since the start of 2021 "when pandemic-related stimulus was still funneling into the household sector."
The firm was braced for a large gain in income due to one-off mechanical adjustments made at the start of each year. "That is, the January data bring some fresh estimates for income components worth noting like the cost-of-living adjustment to Social Security and adjustments to personal tax payments," analysts explained.