Welcome back to Squawkbox. Rick Santella here live at CME HQ on this important Friday with some key breaking news. Personal income and spending for December, including some of the Fed's favorite metrics.First look at fourth quarter GDP and the numbers should be populating. We're going into this with yields moving lower. And on the GDP side, a big disappointment.We're looking for a number around the 2.8% area. comes in at 1.4% 1.4% 1.4% will be the lowest GDP since the first quarter of 25 when it was negativ ...

The U.S. reported that core PCE rose 3.0% year over year and 0.4% month over month in December 2025, while headline PCE increased 2.9% year over year. Personal income and consumer spending grew 0.3% and 0.4% month over month, respectively. ...

Core Insights - The average American household spent $78,535 in 2024, according to the Bureau of Labor Statistics, indicating a significant financial burden on households as inflation continues to rise despite a reported cooling to 2.7% annually [1][2] - Essential costs, particularly food prices, have increased, with specific items like coffee and beef seeing nearly 20% price hikes, further straining household budgets [1][2] Spending Breakdown - The BLS Consumer Expenditures report categorized household spending across 14 categories, highlighting that a large portion of the average budget is consumed by non-negotiable living expenses [2] - Major spending categories included housing at $26,266, transportation at $13,318, and food at $10,169, with additional costs for insurance, healthcare, and other essentials [6] Income Analysis - The mean personal income in 2024 was reported at $67,080, but this figure is skewed by high earners, while the median personal income was significantly lower at $45,140, providing a more accurate representation of typical earnings [3][4] - For full-time workers, the median weekly earnings were $1,214 in Q3 2025, translating to an annualized income of about $63,128, which helps explain the disparity between median personal income and median worker earnings [5]

Group 1 - A report covering personal income, consumer spending, and PCE inflation data for October and November will be published on January 22 [1] - An initial estimate of GDP for the final three months of 2025 will be released on February 20 [1]

Core Insights - Personal income in the U.S. increased by $94.5 billion, or 0.4% on a monthly basis, in September, consistent with August's growth rate of 0.4% [1] - Disposable personal income rose by $75.9 billion, or 0.3%, which is a decrease from August's increase of $86.1 billion or 0.4% [1] - The rise in current-dollar personal income in September was mainly driven by increases in compensation and personal income receipts on assets, as noted by the U.S. Bureau of Economic Analysis [2]

Government Shutdown Impact - Morgan Stanley Wealth Management's clients are asking about the impact of the government shutdown almost every day [2] - SNAP benefit expiration could drag on personal income by 04% [3] - Government shutdowns historically haven't mattered for the market, but the length of the current shutdown is a concern [4][5] - If the shutdown extends into the holidays, people are going to get nervous [5] - A prolonged shutdown could impact the Virginia gubernatorial election due to the state's large number of government employees [9] - Air traffic controller concerns and potential airport shutdowns could force a resolution [15][16] Political and Economic Factors - New Jersey election is the closest to a true referendum on current political debate [8] - Healthcare, specifically ACA subsidies, is a key point of contention in negotiations, with Democrats wanting a permanent extension and Republicans preferring a temporary or lower-level extension [11] - The difference in ACA subsidy proposals is between $340 billion and $15 trillion [11] - A deal on ACA subsidies could provide a tailwind for healthcare stocks, particularly insurance companies on private exchanges [12][13]

Income Growth & Labor Market - JP Morgan Chase Institute's report indicates tepid income growth overall, with a recent decline, particularly among younger consumers [3] - Younger workers are experiencing less income growth compared to previous years, leading to reduced purchasing power [4] - Lack of job mobility among younger individuals suggests uncertainty in the labor market, potentially influencing employer investment decisions [9][10] - Job turnover, driven by individuals seeking better opportunities, can be a positive indicator for the economy [11] Consumer Spending & Economic Implications - Chipotle observed a pullback in spending across all income groups, with the 25-35 year-old demographic being particularly affected [1] - The struggles of the younger population serve as a signal for the overall state of the labor market [2] - Income is a primary driver of spending, with savings and investment also playing a role [5] - Increased investment by young people may reflect rising asset prices, such as housing [5] - Disparities in asset ownership (stocks, housing) contribute to spending differences between younger/lower-income and older/higher-income groups [6] Forward-Looking Perspective - The analysis focuses more on explaining past trends than predicting future outcomes [8]

Inflation Trends - The PC price index for August increased by 03%/03 percentage point, resulting in a year-over-year rate of 27% [1] - The core rate is 02%/02 percentage point, leading to a rate of 29% [1] - The inflation picture is not improving [1] Consumer Behavior - Personal income increased by 04%/04 percentage point in August [2] - Personal spending was stronger than anticipated, increasing by 06%/06 percentage point, compared to the forecast of 05%/05 percentage point [2] - American consumers are maintaining their spending habits, supported by their incomes [2] - Wages and salaries increased by 03%/03 percentage point in August, a decrease from the 05%/05 percentage point gain in July [3][4] - Consumers are concerned about potential tariff increases and upcoming holidays, leading to increased spending [8] Economic Outlook - The economy might be stronger than expected [3] - Downside risks may be less prominent than previously anticipated [3] - Strong jobless claims data indicates a positive economic trend [7] Impact of Tariffs - Tariffs on big trucks may affect business spending [5] - Tariffs on goods, especially prescription drugs, could negatively impact consumer confidence [5]

Let's talk about a tale of two economies. Uh we we talked about it uh in the Biden era where we kept talking about how the numbers uh looked so great for for the US economy compared to the rest of the world and yet a lot of people hurting uh in middle America, a lot of people hurting uh across the country. Uh and a lot of Americans pessimistic.That helped defeat Kla Harris. Uh how has that changed or are they still pessimistic. They're still pessimistic.And let me start with a poll that you guys referred to ...

Economic Indicators - Personal income rebounded, increasing by 0.3%, surpassing expectations, a notable improvement from the previous month's decline of 0.4% [1][2] - Personal spending rose by 0.3%, slightly below expectations, but reversing a previous decline [2] - Real spending, adjusted for inflation, increased by 0.1%, aligning with expectations [2] Inflation Analysis (PCE) - Month-over-month PCE increased by 0.3%, slightly warmer than previous months, but not the highest reading of the year [3] - Year-over-year PCE increased by 2.8%, the highest reading of the year, equaling March 2024 levels [4] - Core month-over-month PCE increased by 0.3%, the warmest since February [4] - Year-over-year core PCE increased by 2.8%, also warmer than expected and the warmest since February [5] Employment Data - The Employment Cost Index (ECI) for the second quarter increased by 0.9%, slightly above expectations [5] - Initial jobless claims were reported at 218,000, lower than expected [6] - Continuing claims remained above 1.9 million, specifically 1,946,000 [6] Market Reaction - Despite slightly hotter PCE numbers, the market did not climb aggressively [7] - The 10-year Treasury yield increased by approximately one basis point to 4.34%, but remained down almost three basis points for the session [7]