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PCE Mostly In-Line, Consumption Shrinks

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Thursday, June 30, 2022

While we’ve been watching market indices flap in the wind day after day, partly to a lack of guidance from earnings reports and economic prints, today we get some respite: jobless claims and Personal Consumption Expenditures (PCE) for the last two weeks and last month, respectively. In them, we see some more rounding of our perceived parabolic curve.

Let’s start with PCE numbers for May: headline came in +0.6%, 3x what we saw the previous month but only a tick higher than the +0.5% analysts were expecting. When we strip out volatile food and energy costs, we get a “core” headline PCE read of +0.3%, 10 basis points (bps) below what analysts were expecting. This tells us the inflation pain was mostly on the food and energy side last month. Duh.

What most inflation-watchers, including the Fed, pay close attention to are the year-over-year PCE numbers, and here we’re pretty close to expectations as well: +6.3% on headline (in-line with estimates) and +4.7% on core (+4.8% expected, +4.9% in April). Of course, PCE data is drawn from a series of other economic inputs released previously, so surprises are usually modest at best.

Where we see some real mashing of the fruit last month is in the Income/Spending areas: while Personal Income gained +0.5% as expected, Real Personal Consumption posted a big drop-off: -0.4% versus a downwardly revised +0.3% the previous month. Adjusted consumption came in at half of expectations to +0.2%, following another downward revision to +0.6% the prior month.

This is a lot of numbers bouncing around, but the takeaway here appears to be that inflation levels are having a pronounced effect on consumer habits of late. Negative real personal consumption in a month’s time is about as clear a signal as we may receive. We are likely seeing a notable percentage of this coming from the housing market, where potential customers are refraining from paying higher home prices with higher mortgage rates on top of them.

Turning to weekly unemployment tallies, Initial Jobless Claims came in at 231K, 2000 claims lower than the upwardly revised 233K the prior week. This makes 8 of 9 past weeks north of 200K, and the fourth straight above 230K. Back in the last week of April, we saw just 181K new jobless claims. While 231K is still representative of a healthy labor market, we’re clearly in another realm from where we were just a few short weeks ago.

Continuing Claims are also bouncing off cycle lows, posting 1.328 million two weeks ago (continuing claims report a week in arrears from initial claims) which is down -3K from the upwardly revised prior week. We were seeing reads of 1.31 million for much of last month, but it would seem — as initial claims are a somewhat forward-looking indicator of longer-term claims — that these are headed up, moderately, as well.

Pre-markets have gotten a tad worse than the already-low points they were ahead of this economic data. Right now, we have the Dow -360 points, the Nasdaq -150 and the S&P 500 -50 points ahead of the opening bell. It’s the final trading day of the month, the quarter and the first half of 2022. Here’s hoping the back half of this course id more forgiving.

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