As expected, there were few surprises in today’s PCE report. Personal Consumption Expenditures (PCE), the final economic report on the final day of the month of May, was in-line with expectations almost completely across the board. Personal Income came down 20 basis points (bps) month over month to +0.3%, as expected. Personal Spending, the only metric to break with estimates, came in at a cooler +0.2% (+0.4% expected), from a downwardly revised +0.7% in March.
The PCE Index, month over month, came in as expected at +0.3%. This is also in-line with the previous month’s print. Stripping out volatile food and energy consumption, we come down 10 bps from the previous month to +0.2%. This is also in-line with expectations, and the lowest print of the year so far. In the past year, we’ve had three months where we saw lower PCE on a monthly basis: December, August and July of 2023. January 2024’s +0.5% now looks like an outlier.
Core PCE was also in-line, encouragingly so. Its +0.2% was 10 bps lower month over month, demonstrating a controlled leveling off of consumer spending. As we’ve said elsewhere in this space, these numbers remain consistent with the “soft landing” the Fed intends to bring us toward by keeping interest rates higher for longer. As we’ve also said more recently, what they don’t tell you about a “soft landing” is that you usually have to stay inside the plane longer.
Core PCE year over year is perhaps the most important of these figures. Here we come in at +2.8% for a third-straight month, the lowest we’ve seen since March of 2021, when PCE numbers began jumping toward historic highs. Keep in mind that a little more than two years ago, we were north of +5.5% on core PCE on a yearly basis. So while +2.8% looks like a tough floor to break through, it’s clear that overall inflation is now within a manageable range.
Pre-market futures are happy about this. Ahead of this PCE print, we were +35 points on the Dow, +2 on the S&P 500 and +18 points on the Nasdaq. This follows a couple tough trading sessions that seem to have burned off expectations that interest rates will be cut more than a time or two this calendar year. But after PCE numbers were released, within minutes we were +115 points on the Dow, +17 on the S&P and +18 on the Nasdaq. Let’s see if these gains can hold in this final trading day of the month.
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Core PCE Inflation In Line With Expectations
As expected, there were few surprises in today’s PCE report. Personal Consumption Expenditures (PCE), the final economic report on the final day of the month of May, was in-line with expectations almost completely across the board. Personal Income came down 20 basis points (bps) month over month to +0.3%, as expected. Personal Spending, the only metric to break with estimates, came in at a cooler +0.2% (+0.4% expected), from a downwardly revised +0.7% in March.
The PCE Index, month over month, came in as expected at +0.3%. This is also in-line with the previous month’s print. Stripping out volatile food and energy consumption, we come down 10 bps from the previous month to +0.2%. This is also in-line with expectations, and the lowest print of the year so far. In the past year, we’ve had three months where we saw lower PCE on a monthly basis: December, August and July of 2023. January 2024’s +0.5% now looks like an outlier.
Core PCE was also in-line, encouragingly so. Its +0.2% was 10 bps lower month over month, demonstrating a controlled leveling off of consumer spending. As we’ve said elsewhere in this space, these numbers remain consistent with the “soft landing” the Fed intends to bring us toward by keeping interest rates higher for longer. As we’ve also said more recently, what they don’t tell you about a “soft landing” is that you usually have to stay inside the plane longer.
Core PCE year over year is perhaps the most important of these figures. Here we come in at +2.8% for a third-straight month, the lowest we’ve seen since March of 2021, when PCE numbers began jumping toward historic highs. Keep in mind that a little more than two years ago, we were north of +5.5% on core PCE on a yearly basis. So while +2.8% looks like a tough floor to break through, it’s clear that overall inflation is now within a manageable range.
Pre-market futures are happy about this. Ahead of this PCE print, we were +35 points on the Dow, +2 on the S&P 500 and +18 points on the Nasdaq. This follows a couple tough trading sessions that seem to have burned off expectations that interest rates will be cut more than a time or two this calendar year. But after PCE numbers were released, within minutes we were +115 points on the Dow, +17 on the S&P and +18 on the Nasdaq. Let’s see if these gains can hold in this final trading day of the month.