Aside from NVIDIA ((NVDA Quick QuoteNVDA - Free Report) earnings on Wednesday afternoon — a fat lot of good that did, btw: good numbers only wound up sending shares lower — the January Personal Consumption Expenditures (PCE) report out this morning is the most highly anticipated print of the week. And the pre-markets like it: the Dow went from +190 points ahead of the print to +230 after, the S&P 500 doubled from +10 to +20 points, and the Nasdaq swung from -13 points to +45 points.

January PCE: Income Up, Spending Down

Coming as these numbers do after what feels like disappointing data for either a solidly strengthening economy or good reason for the Fed to keep lowering interest rates, today’s PCE report brings something for everyone to be happy about. Personal Income for January more than doubled expectations to +0.9% from the unrevised +0.4% the prior month. Meanwhile, Personal Spending swung to a negative -0.2% from an expected +0.1% and the prior month’s +0.7%.

Real Spending only emphasizes this point: -0.5%. Both spending figures are the lowest we’ve seen in almost four years; now the Savings Rate has grown month over month from +3.5% to +4.6%. This shows a level of responsibility from the American consumer that they are absorbing the realities of the current economy and balking at paying continually higher retail prices. This is a key formation toward bringing inflation down.

The PCE Index month over month on headline and core (subtracting volatile food and energy expenditures) were both +0.3% — in-line with expectations. Year over year, both metrics ticked down: to +2.5% from an unrevised +2.6% the previous month, and +2.6% from an upwardly revised +2.9% on core. This December print is now the highest level we’d seen since March of last year; it’s a good sign that this has been dialed back.

As we know, PCE data is the Fed’s preferred gauge for inflation, so we expect Fed Chair Jerome Powell likes what he sees here. That said, the March Fed meeting is not expected to make a move on interest rates — from September to December of last year the Fed cut 100 basis points (bps), but has held pat since — until May or June. Currently, the market is pricing in two 25 bps rate cuts in 2025: one this spring/summer and one in October.

Trade Balance Sinks to All-Time Depth: -$153B

In other news, January’s Trade Deficit plummeted to an all-time low -$153 billion, from -$122 billion the prior month, which itself was an all-time low from the previous record in March of 2022. We expect a lot of this trade traffic is to get ahead of tariffs levied by the U.S. in the global marketplace at whatever cost; we hope this is a temporary condition. 

Advanced Retail Inventories cooled a little bit to -0.1% — still a negative number, but an improvement from the downwardly revised -0.5%. This is also the first time we’ve seen back-to-back negative prints on this metric since 2021. Advanced Wholesale Inventories rose to +0.7% from +0.5% expected. Again, we look at these figures through the prism of a murky tariff outlook near-term.

Bond Yields Continue to Cool

While equity markets have gotten a cold shower lately in terms of market projections not gibing with economic realities, the bond market has typically brought a more sober approach to rates. Off early January highs on the 10-year, with +4.77% closes, we’ve seen a 50 bps burn-off to +4.26% this morning. The 2-year, which recall spent a year and a half inverted from the 10-year, has also shrunk from +4.40% six weeks ago to +4.06% this morning.

To the extent we can extrapolate future Fed funds rate moves based on bond yields, this development is a good sign. It does point to either shrinking economic growth or a wariness to step boldly into cloudy futures, but either way these are positive developments for those looking for rate cuts to manifest — and perhaps repeatedly — during the course of 2025.