Off The Boil?

It’s like that last peanut butter cookie from the batch you made 10 days ago — stale, but you’ll still take it.

With Q2 GDP already in, June personal spending and income figures were in some sense redundant, but given the premium placed on “timeliness” and granularity in the current environment, the numbers were still relevant.

Personal income rose 0.1% last month, much better than the 0.3% decline the market expected. Personal spending, meanwhile, rose 1% against expectations for a more muted, 0.7% increase (figure below).

Thursday’s GDP report underwhelmed on the headline print, but personal consumption was robust. It’ll need to remain elevated (and then some) in the back half of the year for the Fed’s growth forecast to hold up.

The $155.4 billion increase in current dollar PCE last month reflected a $29 billion increase in spending for goods and a $126 billion increase in spending for services. Americans increased spending on drugs (pharmaceuticals) and gas, while expenditures on durables, namely cars, decreased. In services, increases were described as “widespread across all spending categories,” especially food services and accommodations.

Notably, core PCE rose just 0.4% in June (figure below). That was below the 0.6% the market expected.

Headline PCE prices also came in a touch cooler than anticipated. Obviously, the YoY prints remain extremely elevated (4% on headline and 3.5% on core).

ECI, meanwhile, posted just a 0.7% gain for Q2, matching the lowest estimate. Wages rose 0.9% (Note: I used the private industry series for the figure, below).

All in all, Friday’s data suggested the price pressure cooker might be starting to come off a bit.

“The second consecutive deceleration in the MoM pace of core PCE [is] consistent with the notion that inflation might have peaked for the time being,” BMO’s US rates team said. Bloomberg’s Cameron Crise remarked that this “will obviously encourage ‘Team Transitory’.”


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