This week’s marquee US macro release missed on pretty much every account.
On Friday, the BEA said core price growth on the Fed’s preferred inflation metric ran 0.2% last month (0.179% unrounded), an upside surprise to consensus which wanted 0.1%. On a YoY basis, core inflation ran 2.7% against the 2.6% economists saw.
Those readings hardly count as a disaster, but they do count as the quickest pace of underlying price growth since February.
The headline PCE index rose 0.136% MoM and 2.3% YoY, in line with estimates.
I should be clear: The overshoot on the core measure shouldn’t, and won’t, dissuade anyone inclined to Fed cuts, including Fed officials themselves. Officials like friends-o’-Trump Miki Bowman and Chris Waller, who’re emerging as the Clarence Thomas and Sam Alito of the FOMC.
Note that the so-called “supercore” metric — a made-up measure that strips housing out of an already-narrowed services component — ran 0.1% in May and 3.1% YoY. Those are benign readings for that index.
The rest of the release was just plain old lackluster. Personal spending undershot, both on the nominal and real side. The former fell 0.1% and the latter 0.3% against expectations for small gains.
Personal income posted a 0.4% decline, a woeful miss versus the +0.3% consensus. Real disposable personal income fell 0.7%, the largest drop since September of 2021.
Note: The drop off on the income measures was apparently attributable to a difficult comp versus inflated Social Security payments earlier in the year. A metric that looks at private-sector pay growth showed a 0.4% gain.
This comes on the heels of a rather remarkable downward revision to the personal consumption component in Q1 GDP. The BEA on Thursday said spending ran at less than a third of the initially-reported pace for Q1.
All in all, Friday’s personal income and spending report was a disappointment. It suggests consumers are strained and underlying inflation, while benign by post-pandemic standards, was nevertheless a touch warmer than expected last month.
Even simpler: This was the opposite of Goldilocks.
For the purposes of Fed tasseography, expect the downside surprise on the spending readouts to outweigh the core inflation overshoot.
I awoke to giddy bullish DMs and BBG articles about how anticipation of captured Fed should lead to an amazing bubble we will all remember for years to come! Unicorns and rainbows! A pony for every child. Also saw a court injunction preventing the Executive capture of elections for now… What could go wrong? Might take a few months of explosive rallies to find out? Let’s see what QOPEX brings.
I mean, I get it. Really I do. But at the same time, money’s money. I can’t bring myself to write “what could go wrong?” articles where I pretend to be upset about portfolio gains just because I don’t like who’s president. That’s silly.
Indeed. We all understand the risks. I’m stuck in the middle and holding long. Learned a long time ago to tune out most the noise, don’t invest my politics, and don’t read permabears. Avoiding StockTwits and Twitter is mostly for mental health. It still leaks through and I do my best to do what I can for society, while doing my best for the family’s assets.
Hear! Hear!