Commentary Directory
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- A Strong March Leads to a Surge in Chinese GDP in Q1 2023
- Durable Goods Retail Sales Suffer from High Interest Rates and Wary Consumers
- Choppy GDP Means UK Should Avoid Q1 Recession
- Japanese Consumer Confidence Jumps to Highest Level in Over a Year
- The End of Summer Sees the End of Disinflation in Europe
- Labor Market Indicators are Starting to Unify on Easing in Hiring
- Inflation and Tight Financial Conditions Weigh on the German Consumer
- Euro Area Money Supply Contracts for the First Time Since 2010
- Dismal Economic Data Out of Germany
- Core Durable Goods New Orders See Gentle Uptrend in July
- More UK Data Pointing to Q3 Decline
- Whispers of a UK Contraction in Q3
- Japan's Core Inflation Resumes Uptrend in July
- Early July Economic Data Leads to a Sharp Increase in Q3 Growth Expectations
- UK CPI: Energy Inflation Crashes but Services Inflation is Still Sticky
- China's Weak Start to Q3 Means More PBoC Easing
- A Breather for the Eurozone as Inflation Hits Two-Year Low
- Germany's September CPI Report: A Clearer Picture of Inflation Trends
- US Manufacturing Demonstrates Resilience Amidst Volatility in August
- The ECB Prepares to Address Excess Liquidity Through the MRR
- Bank of Japan is Too Optimistic on Inflation
- The Bank of England Pauses in a Near Split Decision
- UK Inflation August Update: A Precursor to the Bank of England's Announcement
- Housing Starts Tumble in August Amid Rising Mortgage Rates
- US Retail Sales Grow at Fastest Monthly Rate Since the Start of the Year
- US Consumer Prices Surge in August Driven by Energy Costs
- August NFIB Survey Showed a Tough Environment for Small Businesses
- All Signs Point to a Weaker Labor Market in August
- Chinese CPI Trying to Buck the Deflation Trend
- Energy Prices Rise but the Core Disinflationary Trend is Maintained in September
- PPI's Quiet Rise and the Energy Elephant in the Room
- Small Businesses Grapple with Inflation and Financial Strain in September
- A Wacky September Jobs Report Shows Strong Labor Market
- A Look at the Fragile US Labor Market Ahead of the Nonfarm Payrolls Report
- Thoughts on GME and This Week in the Stock Market
- Record Home Price Levels Point to Strength in Post-Pandemic Economy
- The Stock Market Looks Overvalued, but It's Probably Not
- China GDP Growth Surpasses Expectations
- President-elect Joe Biden Introduces His "American Rescue Plan"
- Political Polarization Intensifies with Another Impeachment Along Party Lines
- Metal Demand Has a Bright Future in 2021 and Beyond
- What Happened to That US-China Trade Dispute?
- Civil Unrest, A Rising Threat to the 2021 Economy
- What's in the $900 Billion Relief Plan?
PCE Inflation Meets Forecasts, Yet Fed May See Hawkish Signs
Jacob Hess
March 29, 2024
- US
- Inflation
After a slightly underwhelming January income and outlays report where consumers appeared to be taking a step back from spending, February data provided a bit of a counter to that account. While personal incomes were up just 0.3% MoM and real disposable income actually declined on the month (down -0.1% MoM), personal consumption expenditures expanded 0.8% MoM and when accounting for inflation were up 0.4% MoM. The consensus estimates expected income to be slightly stronger at 0.4% MoM vs 0.3% MoM reported and consumption to be much weaker at 0.5% MoM vs 0.8% MoM reported. This data lends some credence to the narrative that colder weather in January was had an economically chilling effect and there was a slight bounce from that in February.
Spending was relatively strong across both goods and services with the former up 0.5% MoM and the latter up 0.9% MoM. Goods spending was boosted by a strong increase of $28.5 billion in motor vehicle and parts sales as there was a noted pick up in the sales of new light trucks. Behind that category were gains in every service industry including transportation services up $17.0 billion, housing & utilities up $16.3 billion, and recreation + food services & accommodation up $16.3 billion. US consumers remain committed to portioning a large slice of their budgets to services, and that trend has not really faded away.
The all-important PCE price indexes looked to be mostly nonevents. All of the main rates came in in-line with consensus expectations except for the headline MoM move which was a tick below. The core PCE price index grew just 0.3% MoM which matched consensus projections as did the annual rate of growth at 2.8% YoY. At that rate, the Fed's main gauge of inflation is now at the lowest since March 2021. However, other data points that are key to the Fed are pointing to sticky inflationary pressures. Personal income growth is still strong at 4.6% YoY (though this slowed from 4.9% YoY in Jan), and the annualized rate of average of the last three MoM gains in income is over 6.5%. Similarly, services inflation is sticky at 3.8% YoY in Feb, down only 0.1 ppts from 3.9% YoY in Jan. The annualized rate of the average of the last three MoM gains in services prices is a touch above 4.9%. At the moment, it is base effects that is keeping annual rates on a trend of gentle deceleration while underlying near-term trends are strong.
Nothing summarizes the current consumer landscape more than the trend in the personal savings rate. With consumer spending remaining robust in February, the personal savings rate dropped to 3.6% which was down from 4.1% in January and the lowest since December 2022. It seems that higher interest rates are not necessarily tightening the purse strings of the US consumer despite that being one of the goals of the Fed. This could be a signal that inflation expectations are settling higher than pre-pandemic levels as consumers struggled to shake the feeling that inflation is becoming entrenched. While year ahead inflation expectations have come down from above 4%, they have settled at or just below 3% in the last four months, according to the most recent UMich Index of Consumer Sentiment data. This is slightly higher than the average expectation of 2.64% YoY inflation from 2015-2019.
With all this being said, the Fed should not make any major changes in their position on rate cuts as a result of this report. If anything, it should give a bit of a hawkish tilt to some FOMC members who will want to continue to stress caution when it comes to loosening monetary policy.