US DATA: Solid Services Consumption Offsets Goods Weakness Amid Slowing Savings

December's real personal income and spending figures showed significant divergence between goods and services consumption, and while employee compensation remained solid, net personal savings continue to dwindle. * Real disposable income has flatlined since August 2025 and is below the level of March/April 2025 (though those were boosted by one-off Social Security payments), with December showing a very slight decline (-0.03% M/M). * Worker compensation remains very robust at a 4.3% quarterly run rate in Q4 (0.2% M/M in Dec), though overall income is rising at a relatively slower pace (0.3% M/M in Dec but 3.5% for Q4 as a whole). Real personal income excluding government transfers was -0.1% M/M and has effectively flatlined since July. * The 3.0% quarterly rise in disposable income is whittled down to just 0.1% after adjusting for inflation, while it's rising at just a 0.9% Y/Y pace, the slowest since 2022. * Even so, spending growth continues to eclipse that of income, with personal savings (disposable personal income minus outlays) falling for an 8th consecutive month. The overall households savings ratio declined to 3.6% from an upwardly revised 3.7% prior for a fresh post-October 2022 low, and while this series is subject to large revisions, the trend is clearly to the downside. * The level of personal savings is back to end-2022 levels ($830.8B, down $400B since April). * As presaged by the very poor advance retail sales report, real goods spending fell in December by the most since May, at -0.5% M/M (on a 0.1% nominal decline) vs +0.3% prior (for Q4: -0.1%, just the second negative quarter since January 2023). It also fell 0.1% Y/Y, the first such decline since March 2023. * As such, higher goods prices are taking a bite out of measured real consumption. (Note core goods PCE inflation rose to 0.43% M/M after being flat for the prior 2 months; core services inflation picked up to 0.345% after 0.28% averge in the prior 2 months). * On the other hand, services spending was solid in December and in the quarter as a whole, not really skipping a beat from Q3. Real services spending rose 0.3% M/M (0.1% prior) in December on a 0.7% M/M nominal jump, sealing a 3.4% quarterly pace (3.6% in Q3) and leaving the Y/Y run rate at a solid 2.6%. * The less bright note though is that the breakdown of services spending isn't particularly healthy: the biggest contributor by far was healthcare, up 0.5% for a 2nd month in real terms. Large discretionary aggregates fared less well: food services/accommodations fell 0.7% (same level now as in April 2025) and recreation services up just 0.2%.

US DATA: U.Mich Inflation Expectations and Consumer Sentiment Revised Lower

The finalized U.Mich consumer survey for February saw a both 1Y and 5-10Y inflation expectations nudge a tenth lower whilst consumer sentiment saw most of the increase in the preliminary report revised away. Improved sentiment from those with largest stocks exposure was offset by declines for those without stock holdings. * 1Y inflation expectations: 3.4% (cons & flash 3.5) in Feb final after 4.0% in Jan - confirms lowest reading since Jan 2025 * 5-10Y inflation expectations: 3.3% (cons & flash 3.4) in Feb final after 3.3% in Jan, having seen the same pattern in January reports with an initially higher flash. It remains a tenth off the 3.2% in Dec at was the lowest since Jan 2025. * Consumer sentiment: 56.6 (flash 57.3) from 56.4 in Jan, with the preliminary increase mostly revised away. It doesn't materially change relative trends, with sentiment firming from a December low of 51.0 (lowest since the series low of 50.0 in Jun 2022) but still at historically depressed levels. * From the press release: "All index components posted insignificant movements this month; overall, consumers do not perceive any material differences in the economy from last month. " * "About 46% of consumers spontaneously mentioned high prices eroding their personal finances; readings have exceeded 40% for seven months in a row. Sentiment is about 13% below a year ago and 21% below January 2025. That said, views vary considerably across the population." * "A sizable month-to-month increase in sentiment for the largest stockholders was fully offset by a decline among consumers without stock holdings."

US DATA: Atlanta Fed GDPNow Opens Q1 With 3.1% Projection Driven By Consumption

The Atlanta Fed initiates its GDPNow estimate for Q1 2026 with 3.1% Q/Q SAAR. See table in image below. * PCE is seen driving growth (2.9% growth after 2.4% in Q4) with equipment investment revving up (7.5% after 3.2%) and intellectual property investment remaining strong (6.6% after 7.4%) in what appears a nod to a continued AI-led tech investment boom. * Residential investment is seen contracting again (-2.4% after -1.5%) with nonresidential structures likewise (-0.4% after -2.4%)). * Government spending growth is seen rebounding after the shutdown (+1.6% after -5.1%), while net exports are seen as a drag (-0.5pp after +0.1pp) with inventories a boost (0.8pp after +0.2pp). * GDPNow missed the Q4 estimate badly (1.4% actual, GDPNow 3.0%) but about 1.2pp of the 1.6pp miss can be chalked up to their mis-estimation of the government shutdown impact on growth. * Source: Atlanta Fed

US DATA: Flash PMIs Disappoint Along With Strong Service Selling Price Inflation

The S&P Global US PMIs were weaker than expected for both manufacturing and service sectors in the flash February report, with the manufacturing index hitting a seven-month low and services a ten-month low. Average input costs rose sharply again but there were mixed developments in selling prices with the softest manufacturing inflation in 14 months but services inflation at one of its strongest readings in the past 3.5 years. * Manufacturing: 51.2 (cons 52.4) in Feb prelim after 52.4 in Jan and 51.8 in Dec * Services: 52.3 (cons 53.0) in Feb prelim after 52.7 in Jan and 52.5 in Dec * Composite: 52.3 (cons 53.1) in Feb prelim after 53.0 in Jan and 52.7 in Dec Highlights from the PMI press release (in full here: https://www.pmi.spglobal.com/Public/Home/PressRelease/de7251a734954460986e49e0a b041b2f): * "US business activity rose at the weakest rate for ten months in February, according to early 'flash' PMI data, signaling a cooling of economic growth. Rates of expansion moderated in both manufacturing and services, reflecting weakened order book trends, in turn led by falling exports, though adverse weather was partly to blame. Employment rose only marginally as companies worried about weak sales and high costs. " * "Average input costs rose sharply again in February, linked to supplier price hikes, tariffs and higher wages, feeding through to the largest increase in average selling prices since last August." * Further detail on pricing: "Although selling price inflation moderated in the manufacturing sector to a 14-month low, attributed to increased discounting to stimulate sales, services inflation jumped to a seven-month high, registering one of the strongest rates of increase recorded over the past three-anda-half years." * "Business expectations for the year ahead jumped to the highest for just over a year, adding to signs that at least part of February's slowdown may prove temporary."