Same Picture, Different Data

The BEA handed markets a generally cooperative set of data on Thursday, one session on from a rousing rally triggered by a dovish interpretation of Jerome Powell’s remarks at a Brookings event.

PCE prices rose 0.3% MoM in October, less than the 0.4% economists expected, while core prices rose just 0.2%, also cooler than forecasts (figure below), and consistent with the favorable CPI report released earlier this month.

The figures came on the heels of upward revisions to the price indexes included in the third vintage of Q3 GDP, released on Wednesday.

Fed officials have gone out of their way to emphasize that one month doesn’t make a trend. Still, it’s now plain that barring a material re-acceleration in the monthly pace of CPI and/or PCE, 75bps rate-hike increments are a thing of the (recent) past.

The 12-month prints on headline and core PCE price growth for October were in line at 6% and 5%, respectively (figure below).

The YoY headline print was the coolest of 2022, with the caveat that “cool” remains an extremely relative term.

All eyes will turn to Friday’s jobs report and, after that, November CPI, which will doubtlessly be billed as another “make or break” moment, both for policymakers and market participants.

Jobless claims figures released concurrently with Thursday’s personal income and spending report were mixed. Initial claims fell to a lower-than-expected 225,000, while continuing claims rose to 1.61 million, more than forecast. Initial filers are nowhere near levels consistent with recession.

Thursday’s BEA update also showed a robust gain in nominal incomes. Real disposable personal income rose 0.4% from the prior month, the most since July. Consumption matched consensus with a 0.8% increase from September, while real personal spending was likewise solid, posting a 0.5% increase.

All in all, Thursday’s data painted a familiar picture. Although the rise in continuing claims and an ostensibly large YoY jump in Challenger job cuts (which was surely flattered by base effects) suggest incremental moderation in the labor market, still subdued initial claims, solid spending and still-high wage growth point to a resilient economy. As long as that’s the case, the Fed can’t count on a steady decline in the monthly inflation prints.


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7 thoughts on “Same Picture, Different Data

  1. Here’s a blog post by Jon Wolfenbarger. He’s a former Wall Street investment banker. He’s warning that the cards are stacked against equity markets for the foreseeable future and offers charts to back that up.

    It’s a bunch of technical analysis with charts showing the CBOE Volatility Index, or the VIX (VIX), bouncing off a trend line that in the past has shown prior bottoms for that index and peaks in the S&P 500 this year.

    Despite a nearly year-long bear market, the bull/bear ratio reached historically bullish levels at the early 2022 market peak and remains in very bullish territory, he says.

    “This bearish technical setup for the stock market, combined with overly bullish investor sentiment in the face of the Fed hiking rates into a recession, suggests that the stock market is likely to start another major bear market selloff soon,” Wolfenbarger says.

    He sees that recession starting any day now and ending around late 2023 or early 2024.

    1. As a reminder: We only permit links to major news outlets (e.g., Reuters, New York Times, Bloomberg, WSJ, FT, etc.) in comments. As such, I’ve removed the link from the comment above.

  2. “the personal saving rate—personal saving as a percentage of disposable personal income—was 2.3 percent (table 1).”

    Add in the surge in credit card balances and you have to wonder about the sustainability of retail activity, no?

    1. Yeah, I guess. But trying to time that is impossible. Americans have ~$3 trillion in headroom on those cards. And outside of the bottom 20% of households (by income), Americans have more than $3.5 trillion in checking account balances and cash versus pre-pandemic levels. Sure, card limits could get slashed and those cash balances have already been run down (the figures are from Q2), but the drop in the savings rate is just like every other 2021/2022 statistic: Distorted by 2020’s distortions. Nobody knows what’s going on or where anything’s headed.

      1. Folks in the states have long opted to live for today. Some by choice, some not. Betting against the consumer has not been a good investment strategy in recent years.

        But how much more debt will consumers gladly add once the post-Covid “relief” spending on hospitality and travel is satiated?

      2. A big part of my Q1 demand crash & earnings reckoning thesis was built on the end of the student debt repayment moratorium happening Jan 1, but that can was kicked 9 months down the road last week. That points to stickier demand and all that comes with it.

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