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Personal consumption expenditures – What to know in markets Friday

Emily McCormick

The Bureau of Economic Analysis (BEA) will release its monthly report on personal consumption expenditures (PCE) at 8:30 a.m. ET Friday, which will likely show just a mild uptick in underlying prices in November.

Consensus economists expect headline PCE rose 0.2% month-on-month in November and 1.4% over last year. This would represent just a modest acceleration from October’s 1.3% gain.

The core PCE, which excludes food and energy, is expected to have risen 0.1% on a monthly basis and 1.5% in November over last year. Core PCE serves as the Federal Reserve’s preferred measure of underlying price trends, as it strips out typically volatile categories from the index.

Such a result would represent a further move below the Fed’s 2% inflation target, a level that has remained elusive over more than the past year. In October, core PCE rose over last year at a rate of 1.6%, or about the same level averaged over the course of 2019 to date.

According to a measure from Bloomberg, core PCE inflation has met or exceeded the Fed’s 2% target just 11% of the time in the current cycle. In the Fed’s December monetary policy decision, officials noted that “market-based measures of inflation compensation remain low,” suggesting that the bank would not likely move interest rates higher in the near-term since upward pricing pressures stayed sanguine.

“A persistent underperformance of core PCE inflation below the Fed’s symmetric 2% target indicates that the balance of risk around our monetary policy outlook remains tilted toward easing,” Nomura economist Lewis Alexander said in a note last week. “We maintain our medium-term view that core PCE inflation will pick up modestly in the next year, but is unlikely to exceed 2.5%, a level that we consider as the upper end of an acceptable range of inflation for the FOMC policymakers.”

Shoppers walk around looking for Black Friday sale items at a Sears store in Hialeah, Florida, U.S., November 29, 2019. REUTERS/Maria Alejandra Cardona
Shoppers walk around looking for Black Friday sale items at a Sears store in Hialeah, Florida, U.S., November 29, 2019. REUTERS/Maria Alejandra Cardona

Meanwhile, personal incomes and personal spending likely picked up in November, with the latter boosted by an anticipated rise in auto purchases after a sharp decline in October.

Consensus economists expect personal income rose 0.3% in November after staying flat in October. Personal spending likely rose 0.4%, edging higher from a 0.3% gain during the prior month.

“Service consumption spending likely rose more solidly relative to goods,” Alexander said. “Adverse weather conditions in November likely raised consumer demand for utility services for heating, temporarily boosting the spending on this service component.”

“Overall, given strong consumer fundamentals, we expect consumer spending growth to remain resilient in the near-term,” he said.

Other economic data reports set for release Friday include the third revision of U.S. third-quarter gross domestic product and the University of Michigan’s final print on consumer sentiment in December.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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