Implications: Christmas came early to consumers' paychecks, and they put their extra income to work. Private-sector wages and salaries rose 0.4% in November (following a 0.5% bump in October), and are up 5.7% in the past year. Incomes were further supplemented by a rise in farm proprietors' income and interest income. Higher wages, in turn, continue to drive spending, which rose 0.4% in November. Purchases picked up for both goods and services, while consumers still had room left over to put money into savings. Households have de-levered following the recession, bringing financial obligations (think mortgages, car loans, etc.) to near multi-decade lows as a share of after-tax income. Put simply, the strong labor market has more people working more hours for more pay. That math - aided by the improved tax and regulatory environment that went in place in 2018 – provides a strong base for continued economic growth in 2020. One area the Fed has been keeping a keen eye on is inflation, which continues to run below its 2% target. PCE prices rose 0.2% in November and are up 1.5% in the past year. "Core" prices, which exclude the volatile food and energy sectors, rose 0.1% in November and are up 1.6% in the past twelve months. Neither are far from the Fed's 2.0% target. Add in other reports on the economy like today's releases on GDP, and we are confident the Fed will remain on pause through at least the end of next year. Strong consumers, rising wages, tame inflation. There is plenty to be jolly about this holiday season. On the manufacturing front, the Kansas City Fed index fell to -8 from -3 in November. This is in-line with other regional surveys showing a modest slowdown in activity in December. Look for this to flow through in the ISM manufacturing report that will kick off the new year.
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