INSTANT VIEW: Reaction to personal income data

NEW YORK (Reuters) - Personal income rose more than expected in February as the economy teetered on the brink of a possible recession, while both personal spending and a key price measure increased only slightly, a government report showed on Friday.

KEY POINTS: * The Commerce Department reported that February personal income rose by 0.5 percent, exceeding a forecast of 0.3 percent made by analysts polled before the report. * The department said personal spending increased 0.1 percent in February, in line with expectations, after a 0.4 percent gain in January. * The personal consumption expenditure price index, a key measure of inflation, rose 0.1 percent in February after a downwardly revised increase of 0.3 percent in January. Excluding volatile food and energy costs, the personal consumption expenditure index also rose just 0.1 percent, in line with analyst expectations. * On a year-over-year basis, this core index rose 2.0 percent, matching the prior months' gain, which was downwardly revised from 2.2 percent.

COMMENTS:

T.J. MARTA, FIXED INCOME STRATEGIST, RBC CAPITAL MARKETS, NEW YORK:

"Income remains buoyed, with the trend (6-month moving average) at a moderate pace not yet consistent with recession. In contrast, spending is showing signs of rapid deterioration. The contrast reflects consumers getting hit by lack of financial intermediation and housing wealth losses, as compared to job losses. One's outlook for growth should takes it cue from the spending figure here. Furthermore, a danger exists that the credit problems leading to the consumer pullback will lead to job losses and income declines.

"The inflation report has be allowing the FOMC members a sigh of relief, with inflation falling at least to the top of the 1-2 percent comfort zone expressed by some FOMC members after having begun to rise worrisomely in late 2007."

DOMINIC KONSTAM, HEAD OF INTEREST RATE STRATEGY, CREDIT SUISSE, NEW YORK:

"The data were pretty much in line. Inflation was a bit better and incomes a bit stronger, but that seems to be more because of government transfer payments for disability and unemployment insurance. When you strip that out the income numbers were pretty much as expected. So, better inflation, otherwise the same old idea of consumption not doing very well. So that's reasonably constructive at the margins for a low-inflation, yield curve flattening story. But otherwise I don't think the Treasury market really cares."

JOHN CANAVAN, MARKET ANALYST, STONE & MCCARTHY, PRINCETON, NEW

JERSEY:

"The core PCE inflation number, at 2.0 percent (year-over-year), unchanged from the prior month, certainly doesn't hurt the Fed's outlook and is slightly on the positive side. That has helped bonds improve slightly, but we are really looking at just one month's number here."

ZACH PANDL, ECONOMIST, LEHMAN BROTHERS, NEW YORK:

"The report is modestly better-than-expected on the inflation front and the income/consumption side. Consumption was pretty weak. This is going to leave our first-quarter GDP forecast largely unchanged, which is a 0.5 percent decline on an annualized basis.

"The decline in the year-over-year core PCE is important in that it supports the notion the Fed is making the right decision in cutting rates aggressively and not threaten long-term price stability. It argues that the Fed can lower rates in the months ahead."