Yahoo Finance PCE Keeps "Soft Landing" Intact, Pre-Markets Shrinking
Friday, June 28th, 2024
The most important economic report of the week is out this morning. Personal Consumption Expenditures (PCE) for May release a slew of American consumer household income and spending-habit data. It also pulls from other economic metrics released earlier in the month, and as such is the Fed’s preferred gauge for measuring inflation in determining monetary policy.
Personal Income last month rose to +0.5%. This is higher than the +0.4% expected and 20 basis points (bps) stronger than the +0.3% reported for April. It’s also, in and of itself, a figure that runs somewhat counter to lower inflation. That said, it equals the +0.5% we saw in March of this year. Add in Personal Spending, this came down to +0.2% from +0.3% expected, and up 10 bps from the downwardly revised +0.1% the previous month. This points toward curbing inflation.
Real Spending adjusts for inflation. This print came in at +0.3% for May, which we saw come in higher back in March, +0.4%. Back in January of this year, Real Spending reached only -0.3%. So at a glance, it would appear we’re on somewhat more placid waters than when we started the year. The Personal Savings Rate, which constitutes personal savings as a percentage of disposable personal income, was 3.9% in May. Certainly below Covid levels, but not austere.
The PCE index month over month was unchanged: 0.0%. This is consistent with expectations, and down 30 bps month over month — a good sign for mitigating inflation tendencies. That +0.3% figure a month ago was the highest since November of last year, so it’s nice to see this measure pulled down notably. Core month over month — stripping out volatile food and energy costs — reached estimates at +0.1%, down 20 bps from an upwardly revised +0.3% for April.
PCE year-over-year numbers are where we see real progress. Headline PCE year over year came in at +2.6% — as expected and 10 bps below the unrevised +2.7% the previous month. While this helps investors breathe a sigh of relief, it’s still a tick up from the +2.5% we saw in both January and February of this year. The good news from a wider perspective is that we’re back down, consistently, to levels we haven’t seen in more than three years.
Core PCE year over year came in at +2.6%. This is as expected, 20 bps lower month over month, and the lightest monthly figure since March of 2021. It would be difficult, off the top of the head, to think of a more helpful single metric depicting shrinking inflation in today’s economy. That spring and summer of 2021 — the start of the Great Reopening for the U.S. economy — was when we saw inflation metrics like core PCE spike up to 40-year highs. It’s nice to be off that ride.
One more important number is the "Supercore" special index. This is the core services print, subtracting housing costs (which are often the main expense a household has, and still shows pent-up demand amid shrinking inflation elsewhere). This came in at an encouraging +0.1%, the lowest read since October 2020. Year over year's +3.39% is also lower than anticipated.
Pre-market futures, however, are dwindling. We’ve gone from +25 points on the Dow, +20 on the S&P 500 and +100 points on the Nasdaq immediately following this report to -7, +9 and +25 points, respectively. As important as this PCE data is for future interest rates — does the Fed consider cutting in July? it’s now a viable question — the market’s mood may be reflecting uncertainty due to President Biden’s poor performance in Thursday night’s presidential debate.
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