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Pre-market futures are improving following the release of major economic numbers this morning. A drawback in EU markets this morning (Germany reported a surge in unemployment and higher inflation) brought U.S. indexes lower, but they are fighting higher — though it’s now become choppy — based on the Fed’s preferred inflation metric. The small-cap Russell 2000 has made it to the green; the other major indexes still lag in the red.
PCE Numbers In-Line: No Threat to September Rate Cut
We’ll get right to the chase here and say that today’s in-line figures on July Personal Consumption Expenditures (PCE) were as expected, and thus no unexpected hindrance to the 25 basis point (bps) rate cut signaled for the September 16-17 Fed meeting. Any upward surprise on these inflation metrics might have put this notion in jeopardy.
Personal Income for July, month over month, reached +0.4% in today’s report. This is the strongest number since April and up +10 bps from the prior month. Personal Spending came in at +0.5%, also alongside estimates, and up 20 bps month over month. This is the highest print since +0.7% reported in March. Real Spending (accounting for inflation) was also in-line at +0.3%.
The headline PCE Index on a month-over-month basis, was in-line at +0.2% — the slimmest figure since May and down 10 bps from the June headline. Year over year, we saw a likewise as-expected +2.6%, in-line with a month ago, though still +40 bps from the year-to-date low +2.2% reported for April.
Core PCE numbers, stripping out volatile food and energy expenditures, continue this perfect streak of being in-line with estimates: month over month, +0.3% is also what we saw for June. Core PCE is the only figure within this series of metrics to have ticked up from the previous month: +2.9%, as expected, from +2.8%. That we’ve not struck a 3-handle on core PCE should be a cause for, if not celebration, at least a quiet sigh of relief.
Then again, PCE data usually comes with fewer surprises than other economic data. For one thing, control numbers from other economic prints throughout the month have already been absorbed by economists’ understanding of the overall situation. For another, the reason PCE data is the Fed’s preferred gauge for inflation is because of its overall comprehensive nature.
A Quick Note on Fed Expectations
Putting aside the courtroom drama affecting the Federal Open Market Committee (FOMC) this morning, it may be worth pointing out that Fed Chair Jerome Powell’s perspective on interest rates prevails — a week after his speech at Jackson Hole a week ago which helped moved market indexes higher. That’s because his main concern seemed to pivot from inflation levels to the other half of the Fed’s dual mandate.
Powell’s concern was about softening employment: July’s headline BLS non-farm payrolls figure reached +73K, and even that is higher than the downwardly revised trailing 4-month average of just +54K new jobs having been created per month. Compare this to the previous trailing 4-month average of +167K — it’s less than half. Even the same period a year ago, which was also perceived as relatively weak, was +122K per month.
Thus, only a major upward revision on PCE was going to change this outlook. If Powell has been consistent with one thing above others, it has been in his signaling of prevailing intentions from the FOMC. In short, inflation metrics, while higher than the Fed’s preferred +2% rate, is not leading the decision for the pending rate cut: weakening employment is.
Other Data Out This Morning
Advanced Trade in Goods took a disappointing turn for July, down to -$103 billion this morning, more than -$10 billion lower than anticipated and off the relatively benign -$86.0 billion reported for June. Though moving in the wrong direction, we’re still a ways off the (tariff-distorted) all-time low in March of -$161 billion.
Advanced Retail Inventories came in 10 bps lower month over month to +0.2%. Wholesale Inventories were in-line with the June headline, also at +0.2%. These are preliminary figures, subject to future revisions. Again, considering our current tariff environment, we’re looking at fairly placid numbers here.
What to Expect from the Stock Market Ahead
Tactically, summer comes to an end this weekend, with closed markets Monday in observance of Labor Day in the U.S. We’ll thus begin a shortened trading week with new jobs reports: July JOLTS numbers come out Wednesday and private-sector payrolls from ADP ((ADP - Free Report) on Thursday. Then the big BLS non-farm payrolls report hits the tape a week from today.
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PCE Inflation Came In Line With Expectations
Pre-market futures are improving following the release of major economic numbers this morning. A drawback in EU markets this morning (Germany reported a surge in unemployment and higher inflation) brought U.S. indexes lower, but they are fighting higher — though it’s now become choppy — based on the Fed’s preferred inflation metric. The small-cap Russell 2000 has made it to the green; the other major indexes still lag in the red.
PCE Numbers In-Line: No Threat to September Rate Cut
We’ll get right to the chase here and say that today’s in-line figures on July Personal Consumption Expenditures (PCE) were as expected, and thus no unexpected hindrance to the 25 basis point (bps) rate cut signaled for the September 16-17 Fed meeting. Any upward surprise on these inflation metrics might have put this notion in jeopardy.
Personal Income for July, month over month, reached +0.4% in today’s report. This is the strongest number since April and up +10 bps from the prior month. Personal Spending came in at +0.5%, also alongside estimates, and up 20 bps month over month. This is the highest print since +0.7% reported in March. Real Spending (accounting for inflation) was also in-line at +0.3%.
The headline PCE Index on a month-over-month basis, was in-line at +0.2% — the slimmest figure since May and down 10 bps from the June headline. Year over year, we saw a likewise as-expected +2.6%, in-line with a month ago, though still +40 bps from the year-to-date low +2.2% reported for April.
Core PCE numbers, stripping out volatile food and energy expenditures, continue this perfect streak of being in-line with estimates: month over month, +0.3% is also what we saw for June. Core PCE is the only figure within this series of metrics to have ticked up from the previous month: +2.9%, as expected, from +2.8%. That we’ve not struck a 3-handle on core PCE should be a cause for, if not celebration, at least a quiet sigh of relief.
Then again, PCE data usually comes with fewer surprises than other economic data. For one thing, control numbers from other economic prints throughout the month have already been absorbed by economists’ understanding of the overall situation. For another, the reason PCE data is the Fed’s preferred gauge for inflation is because of its overall comprehensive nature.
A Quick Note on Fed Expectations
Putting aside the courtroom drama affecting the Federal Open Market Committee (FOMC) this morning, it may be worth pointing out that Fed Chair Jerome Powell’s perspective on interest rates prevails — a week after his speech at Jackson Hole a week ago which helped moved market indexes higher. That’s because his main concern seemed to pivot from inflation levels to the other half of the Fed’s dual mandate.
Powell’s concern was about softening employment: July’s headline BLS non-farm payrolls figure reached +73K, and even that is higher than the downwardly revised trailing 4-month average of just +54K new jobs having been created per month. Compare this to the previous trailing 4-month average of +167K — it’s less than half. Even the same period a year ago, which was also perceived as relatively weak, was +122K per month.
Thus, only a major upward revision on PCE was going to change this outlook. If Powell has been consistent with one thing above others, it has been in his signaling of prevailing intentions from the FOMC. In short, inflation metrics, while higher than the Fed’s preferred +2% rate, is not leading the decision for the pending rate cut: weakening employment is.
Other Data Out This Morning
Advanced Trade in Goods took a disappointing turn for July, down to -$103 billion this morning, more than -$10 billion lower than anticipated and off the relatively benign -$86.0 billion reported for June. Though moving in the wrong direction, we’re still a ways off the (tariff-distorted) all-time low in March of -$161 billion.
Advanced Retail Inventories came in 10 bps lower month over month to +0.2%. Wholesale Inventories were in-line with the June headline, also at +0.2%. These are preliminary figures, subject to future revisions. Again, considering our current tariff environment, we’re looking at fairly placid numbers here.
What to Expect from the Stock Market Ahead
Tactically, summer comes to an end this weekend, with closed markets Monday in observance of Labor Day in the U.S. We’ll thus begin a shortened trading week with new jobs reports: July JOLTS numbers come out Wednesday and private-sector payrolls from ADP ((ADP - Free Report) on Thursday. Then the big BLS non-farm payrolls report hits the tape a week from today.