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.