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PCE, Income & Spending and Durable Goods All Stronger

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Friday, May 26th, 2023

Pre-market futures are up in early morning trading this Friday, though not by levels high enough to turn this week positive, at least on the Dow. NVIDIA’s NVDA great Q1 numbers this week (among other tech stocks, especially those related to the A.I. space) gave the Nasdaq a step up so far. Let’s see what comes out of the wash after we get through a big morning of economic data.

Nominal Personal Income came in as expected: +0.4%, up from an unrevised +0.3% and the highest print since the +0.6% we saw in January (a carry-over from holiday spending; April may be indicative of pre-summer spending). Personal Spending doubled expectations: +0.8% from the +0.4% estimate, and a big move up from the downwardly revised +0.1% the previous month.

Real Spending came in at +0.5%, while the Deflator was +0.4% — both figures higher than analysts had been anticipating. Again, these numbers are popping to their highest levels since January, back when the Fed funds rate was still -75 basis points (bps) lower than it is today (although just -50 bps from April, when this data is from). We’re of course well off the multi-year highs from June of last year, but these are still signs inflation is not coming down very quickly at all.

Personal Consumption Expenditures (PCE) was also higher than expected: +0.4% on headline, topping the unrevised +0.1% in March and the highest since +0.6% in January (+1.0% in June ’22). Core PCE month over month was also +0.4%, above the unrevised +0.3% the previous month. A strong consumer with demand still working through the economic pipeline, at least month to month, is a big part of the narrative.

Year over year, PCE in April came in at +4.4% — 20 bps higher than consensus — with core PCE year over year +4.7% — up 10 bps from expectations. February was +5.1% and last June’s +7.0% were the high water marks, and although we’re notably off those peaks, again it’s clear inflation metrics are taking longer than expected to get through on the domestic economy. Perhaps big summertime spending — family vacations, etc. — are skewing these numbers a bit on seasonality, but we’re still looking at pretty sticky inflation.

Preliminary Durable Goods Orders, also for April, swung well into positive territory from expectations: +1.1% reported versus -0.8% estimated, with a downward revision of 30 bps on the previous month’s print to +2.8%. Ex-Transportation, -0.2% is 10 bps healthier than the -0.3% posted for March. Non-Defense, ex-aircraft (a proxy for “real” business spending like computers and office furniture, etc.) reached +1.4% — the highest we’ve seen since December 2021. Shipments came in at +0.5% for the month.

The good news: no recession visible, even after passing most or all of the regional banking headwinds through the python. The bad news? The Fed is finding precious little in its way of adding another 25 bps interest rate hike mid-next month. There is plenty of data yet to come before June 14th — the date of the next monetary policy decision — but when big reports like PCE demonstrates inflation still going strong, Fed members may feel they have no choice but to raise again.

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