Friday, December 20, 2024

Pre-market futures are lower in the final session before Christmas Week, quite possibly more with that’s going on in Washington DC this morning than anything else. The potential of a federal government shutdown — which has not happened since 2018-19, the second of two shutdowns in 2018 — looks to be a reality for the first time in years. This helped the Dow and Nasdaq pre-market indexes down more than -200 points early this morning. 
 

Will the U.S. Government Shut Down"

Part of what’s weighing on today’s pre-markets is the spectre of a potential government shutdown, after a vote on the House floor failed Thursday night. House Speaker Mike Johnson announced there will be a spending bill on the floor to be voted on today, but there are questions what that will look like — or who will be for or against it.

Keep in mind the richest man in the world is now part of our federal government. Elon Musk not only has President-elect Trump’s ear, there are perceptions that Musk also has a noteworthy level of control over the purse strings for federal spending. We know that Trump cares very much about optics — if there is to be a government shutdown, he would rather see it now, while Joe Biden is still president, instead of a month from now, when Trump re-takes office.

Thus, we may be seeing a Christmas rift in the near-term. Furloughed workers may not be getting paid ahead of the holidays. Not to get too deep into what all this means for the overall economy, but this was not the sort of thing on investors’ minds when markets were closing at all-time highs a couple weeks ago.
 

PCE Report Comes In Cooler than Expected

The monthly Personal Consumption Expenditures (PCE) report is out this morning for November — one of the least volatile and most relied-upon series of economic data. It’s the Fed’s preferred gauge on inflation levels, and the good news here is that the economy seems to be continuing to behave well.

Nominal Personal Income last month reached a headline of +0.3%, 10 basis points (bps) cooler than the +0.4% expected, and growing at only half the rate of the +0.6% we saw in October. Personal Spending, likewise, was 10 bps below estimates at +0.4% — in-line with the previous month. Real Spending was also in-line at +0.3%.

The headline PCE Index month over month came in at +0.1%, again another 10 bps cooler than anticipated and the lowest monthly print since August. PCE year over year hit +2.4% — lower by 10 bps from expectations, but still up from the previous month’s +2.3%, and the warmest read since July.

Core PCE month over month (subtracting volatile food and energy prices) was the lowest since May: +0.1%, down from the +0.2% and +0.3% posted a month ago. A 20-bps drop in core month over month PCE is just the sort of thing the Fed likes to see.

Core PCE year over year, at +2.8%, is 10 bps cooler than anticipated and in-line with the +2.8% we saw in October. You’ll note this is still above the optimal +2% inflation the Fed has been seeking in our data since it began adjusting interest rates back in March of 2022. 

While it’s nice we’re seeing a resilient economy, the Fed will continue to strongly scrutinize economic data before ushering in new interest rate cuts in 2025. The next Fed meeting comes about 10 days into President-elect Trump’s new term. If we see PCE data relatively in-line with this morning’s figures, it would be safe to suggest rates will not come down an additional 25 bps at that time.

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