Goldilocks! You gotta love it. Or love her, I guess.
This week’s marquee US macro release came up roses on Friday, when the BEA said underlying inflation on the Fed’s preferred metric ran 0.2% last month, in-line with expectations and the first deceleration in the month-to-month pace since March. Once you incorporate revisions (more on that below), it was the second straight deceleration in the MoM pace.
Unrounded, the core PCE print was 0.227%. That’ll work. It’s still much warmer than the typical monthly pace observed pre-pandemic, but in the post-COVID macro context, it’s “fine.” The YoY print was a likewise in-line 2.9%. That’s not “fine,” but we’re pretending it is. And so’s the Fed.
Headline price growth was 0.265% in August from July, and 2.7% from the same month a year ago.
The breakdown suggested goods inflation was non-existent. Services price growth was 0.3%, the same as the monthly advance on the so-called “supercore” metric the Fed monitors.
The release also suggested consumer spending was solid in August. Nominal outlays on goods and services rose 0.6% MoM, brisker than the 0.5% economists expected. More notably, real personal spending — which market participants were watching closely on Friday — beat too with a 0.4% gain versus 0.2% expected. The prior month was revised up to show a 0.4% gain as well.
The personal saving rate fell a fourth month. At 4.6%, it’s the second-lowest since 2022.
The data came a day on from the third and final Q2 GDP revision which suggested consumer spending was far stronger in the second quarter than initially thought. A sharp upward adjustment to a key measure of underlying demand in the same revisions told a similar story.
When taken in conjunction with the GDP revisions and the largest two-week decline in jobless claims since September of 2021, Friday’s relatively cool read on underlying inflation and the decent showing for inflation-adjusted spending together paint a picture of an economy that’s doing just fine.
I realize I’m “supposed” to manufacture some sort of bearish spin or otherwise append a sarcastic punchline nodding to the inevitability of a macro reckoning and a market correction. This’ll have to suffice: Recessions do happen occasionally and stocks can go down as well as up.
Oh, and Friday’s release incorporated a raft of scheduled revisions. They weren’t material as far as I can tell, but it’s worth noting that the monthly core PCE readouts we all parsed out to the third and fourth decimal in an effort to get an “edge” and “refine” our Fed forecasts, are all different now.
If your question is: Gosh, does that mean every second we spent these last years analyzing the unrounded core PCE prints was a wasted second of our lives that we’ll never get back? The answer, unfortunately, is “yes.” If your next is whether the same applies to this data — i.e., if it too will eventually all be revised such that we’re currently wasting our lives parsing mis-measured macro figures, the answer, unfortunately, is also “yes.”
So close to the Fed’s 2% inflation target. Only .9 to go. The counter factual here is that without the tariffs and other unconventional ideas the economy is working through, inflation lilkey would be at the 2% target today.
I think inflation stalling at 3% won’t alarm in the near-term; inflation trending back up would.
**** will lower prices on day 1!
No forecast in economics can ever be right. Sampling data is always subject to error, although that error is likely to be manageable. I don’t consider forays into this woods to be a waste of time, however. We buy insurance not to use it, but just for those times when we might need it. Many consider it a waste of money because mostly we mostly don’t need it. I look at the bills I’ve never had to pay and many of them have been quite large. Many folks go to the doctor once a year to discover if there is anything they they should worry about. Mostly, they find out they are OK. Sometimes not. Late last year, after many tests and procedures my niece discovered that even though she felt fine, she was and still is terminally ill with no hope for her future. Her cancer is everywhere and mostly untreatable. She is a young, gifted college professor whose loss will be notable. Whether she went to the doctor may or may not have been a waste of time but still it was of some use. By definition, one “bit” of information is any fact that reduces uncertainty about a situation by exactly 50%. Finding an answer to a useful question is, never in my view, a waste of time but ex post, if the question at hand has an answer of no, many would consider the process as a waste. The single question mostly responsible for allowing me to gain my doctorate concerned my dissertation research. I was asked whether my hypothesis had to be proved for the study to have created useful knowledge. I was able to say that because of the way I constructed my study it didn’t matter how the results came out, a positive fact would be learned. On that note alone, I passed.
Thanks for sharing. One could also say that the “single question” didn’t have to be answered right for the student to learn. I always enjoy reading your comments!