Friday, February 24th, 2023
The last major piece of economic data for the month of February is out this morning: the Personal Consumption Expenditure (PCE) report for January. Just like what we saw elsewhere this month, we’re seeing data where the pullback from peak inflation levels has flattened. We don’t know at this point whether this is a mere hiccup on our way back down toward 2% inflation, something of a lasting bounce higher (probably not) or whether we’re stuck in the mud.
Headline PCE last month reached +0.6% — triple the upwardly revised +0.2% from the previous month — and the highest since cycle highs we saw back in October of last year, which reached +0.8%. Stripping out food and energy prices, the “core” print was also +0.6%, 20 bps higher than the +0.4% from December. This core print is the highest we’ve seen since last June’s +1.0%, which also happened to be a 42-year high.
The main focus on PCE data, however, is in the year-over-year numbers — and here we’re seeing a print that’s not quite as painful: +5.4% on headline, +4.7% on core. These follow the previous month’s +5.3% and +4.6%, respectively, so although we’re going the wrong direction, it’s only by 10 bps on each measure. Also, going back to September of 2022, we were looking at PCE of +6.3% on headline and +5.2% core, in case you’re looking for reassurance that we remain off those peak inflation figures.
Spending came in at +1.8%, which is the healthiest number since March ’22’s +5.2%. Real Personal Spending reached +1.1% last month. This may give credence to those who feel the consumer will be able to spend its way through this tough economic cycle, although it’s worth pointing out that personal spending numbers are hotter than personal income growth. Say goodbye to those record-high savings rates we saw during the Covid period.
It doesn’t take a monthly PCE report for us to know inflation is still a problem — just go out to a restaurant or a live entertainment event sometime: prices are goofy. Still, this metric is useful in that it lays out the numbers a month in arrears, in a comprehensive manner that allows for the Fed to directly plug into ints inflation and interest rate calculations. That said, today’s report looks pretty disastrous for those of us hoping the Fed is ready to pull the plug on rate hikes in the near future, or are putting to bed speculation that another 50 bps hike is in the cards for the March meeting. Neither of these seem remotely true right now.
Thus, the Dow is trading down -350 points at this hour in the pre-market, the Nasdaq is -200 and the S&P 500 is -50 points. If we keep this up, we’ll finish this holiday-shortened week in the red. But lest we begin wringing our hands about our market outlook, keep in mind this is exactly the kind of bumpy road Fed Chair Jay Powell warned us about. So if we can get through this stretch, we might look for sunnier climes on the other side.
Questions or comments about this article and/or its author? Click here>>
Image: Bigstock
PCE +5.4% Year Over Year, +4.7% on Core
Friday, February 24th, 2023
The last major piece of economic data for the month of February is out this morning: the Personal Consumption Expenditure (PCE) report for January. Just like what we saw elsewhere this month, we’re seeing data where the pullback from peak inflation levels has flattened. We don’t know at this point whether this is a mere hiccup on our way back down toward 2% inflation, something of a lasting bounce higher (probably not) or whether we’re stuck in the mud.
Headline PCE last month reached +0.6% — triple the upwardly revised +0.2% from the previous month — and the highest since cycle highs we saw back in October of last year, which reached +0.8%. Stripping out food and energy prices, the “core” print was also +0.6%, 20 bps higher than the +0.4% from December. This core print is the highest we’ve seen since last June’s +1.0%, which also happened to be a 42-year high.
The main focus on PCE data, however, is in the year-over-year numbers — and here we’re seeing a print that’s not quite as painful: +5.4% on headline, +4.7% on core. These follow the previous month’s +5.3% and +4.6%, respectively, so although we’re going the wrong direction, it’s only by 10 bps on each measure. Also, going back to September of 2022, we were looking at PCE of +6.3% on headline and +5.2% core, in case you’re looking for reassurance that we remain off those peak inflation figures.
Spending came in at +1.8%, which is the healthiest number since March ’22’s +5.2%. Real Personal Spending reached +1.1% last month. This may give credence to those who feel the consumer will be able to spend its way through this tough economic cycle, although it’s worth pointing out that personal spending numbers are hotter than personal income growth. Say goodbye to those record-high savings rates we saw during the Covid period.
It doesn’t take a monthly PCE report for us to know inflation is still a problem — just go out to a restaurant or a live entertainment event sometime: prices are goofy. Still, this metric is useful in that it lays out the numbers a month in arrears, in a comprehensive manner that allows for the Fed to directly plug into ints inflation and interest rate calculations. That said, today’s report looks pretty disastrous for those of us hoping the Fed is ready to pull the plug on rate hikes in the near future, or are putting to bed speculation that another 50 bps hike is in the cards for the March meeting. Neither of these seem remotely true right now.
Thus, the Dow is trading down -350 points at this hour in the pre-market, the Nasdaq is -200 and the S&P 500 is -50 points. If we keep this up, we’ll finish this holiday-shortened week in the red. But lest we begin wringing our hands about our market outlook, keep in mind this is exactly the kind of bumpy road Fed Chair Jay Powell warned us about. So if we can get through this stretch, we might look for sunnier climes on the other side.
Questions or comments about this article and/or its author? Click here>>