We close out a week of pre-market economic activity with a slew of data this Friday morning, including Personal Consumption Expenditures (PCE) and Advance Trade in Goods, both for the month of July. After today’s open, we’ll hear from Fed Chair Jay Powell at the Jackson Hole symposium. Recall at this venue a year ago Powell asserted his belief that inflation was “transitory.” What a difference a year makes!
Headline PCE for July came in at -0.1%, well off the +1.0% pace we saw in June. Core PCE — stripping out volatile near-term prices — winds up on the other side of the ledger: +0.1%, lower than the +0.2% expected and the +0.6% reported in June.
Year over year, PCE on headline dropped a half-point month over month, from +6.8% last print to +6.3% this morning, and lower than analysts were anticipating. However, that +6.8% was the highest year over year headline PCE in 41 years, so there’s still a ways to go yet. Core PCE year over year ticked down to +4.6% from +4.8% posted the previous month, with February of this year setting the high water mark of +5.3%.
Nominal personal income came in much lower than expected: +0.2% versus +0.6% expected, which was the identical read for June. Nominal consumer spending came in well off expectations: +0.1% versus +0.5% expected, and 100 basis points (bps) lower than the +1.1% we saw for June. Month over month, the deflator figure reached +0.1%, a tad higher than the 0.0% expected and in-line with the core deflator, which was thought to reach +0.2% — and is well off the +0.6% posted a month ago.
That’s a lot of numbers to keep straight in your head. The main takeaway here, though, is that we are seeing a further rolling off of inflation — pretty much just the way the Fed intended — even in areas that June was showing to be more stubborn. Put more plainly: this PCE report is good news.
Good enough for the Fed to curtail raising interest rates? That depends on how good your math skills are: does +6.3% = +2%, which remains the Fed’s optimum inflation level? Clearly, the economy needs to tighten further, and this will no doubt include more interest rate hikes in September and beyond.
The question, as it has been for weeks, is whether the Fed will increase rates another 75 bps or reduce it to 50, in order not to constrict the economy too tightly in the near term, especially seeing how well the economy is responding to the +2.25% of rate hikes we’ve added since early March. It’s too early to know for sure, but one thing is certain (thus far): nobody’s talking about hiking rates 100 bps, like some were prior to the last couple Fed monetary policy meetings.
Parsing Powell’s language is something of a parlor game for investment analysts, but we’re not sure how much of this is necessary. The Fed as a whole will still be examining economic prints yet to come; if they continue to please the way today’s PCE data has (pre-markets have rebounded on the tape), we should see 50 bps come into clearer view. If not, think 75.
Advance Trade in Goods for July also performed well this morning: -$89.1 billion was far lower than the -$98 billion analysts were looking for, and the -$98.2 billion posted in June. The all-time high trade deficit actually came in March of this year: -$125 billion. It’s nice to see, especially with interest rates climbing, this important economic figure melting down notably in the near term.
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PCE Report Indicates Inflation Slowing Down
We close out a week of pre-market economic activity with a slew of data this Friday morning, including Personal Consumption Expenditures (PCE) and Advance Trade in Goods, both for the month of July. After today’s open, we’ll hear from Fed Chair Jay Powell at the Jackson Hole symposium. Recall at this venue a year ago Powell asserted his belief that inflation was “transitory.” What a difference a year makes!
Headline PCE for July came in at -0.1%, well off the +1.0% pace we saw in June. Core PCE — stripping out volatile near-term prices — winds up on the other side of the ledger: +0.1%, lower than the +0.2% expected and the +0.6% reported in June.
Year over year, PCE on headline dropped a half-point month over month, from +6.8% last print to +6.3% this morning, and lower than analysts were anticipating. However, that +6.8% was the highest year over year headline PCE in 41 years, so there’s still a ways to go yet. Core PCE year over year ticked down to +4.6% from +4.8% posted the previous month, with February of this year setting the high water mark of +5.3%.
Nominal personal income came in much lower than expected: +0.2% versus +0.6% expected, which was the identical read for June. Nominal consumer spending came in well off expectations: +0.1% versus +0.5% expected, and 100 basis points (bps) lower than the +1.1% we saw for June. Month over month, the deflator figure reached +0.1%, a tad higher than the 0.0% expected and in-line with the core deflator, which was thought to reach +0.2% — and is well off the +0.6% posted a month ago.
That’s a lot of numbers to keep straight in your head. The main takeaway here, though, is that we are seeing a further rolling off of inflation — pretty much just the way the Fed intended — even in areas that June was showing to be more stubborn. Put more plainly: this PCE report is good news.
Good enough for the Fed to curtail raising interest rates? That depends on how good your math skills are: does +6.3% = +2%, which remains the Fed’s optimum inflation level? Clearly, the economy needs to tighten further, and this will no doubt include more interest rate hikes in September and beyond.
The question, as it has been for weeks, is whether the Fed will increase rates another 75 bps or reduce it to 50, in order not to constrict the economy too tightly in the near term, especially seeing how well the economy is responding to the +2.25% of rate hikes we’ve added since early March. It’s too early to know for sure, but one thing is certain (thus far): nobody’s talking about hiking rates 100 bps, like some were prior to the last couple Fed monetary policy meetings.
Parsing Powell’s language is something of a parlor game for investment analysts, but we’re not sure how much of this is necessary. The Fed as a whole will still be examining economic prints yet to come; if they continue to please the way today’s PCE data has (pre-markets have rebounded on the tape), we should see 50 bps come into clearer view. If not, think 75.
Advance Trade in Goods for July also performed well this morning: -$89.1 billion was far lower than the -$98 billion analysts were looking for, and the -$98.2 billion posted in June. The all-time high trade deficit actually came in March of this year: -$125 billion. It’s nice to see, especially with interest rates climbing, this important economic figure melting down notably in the near term.