|
PCE Report Supports Further Fed Rate Hikes Ahead
Saturday, July 8, 2023
Commentary on today's Personal Income and Outlays Report by Dana Peterson, Chief Economist, The Conference Board
NEW YORK, June 30, 2023 /PRNewswire/ --
Highlights: Consumer Spending Showing Signs of Slowing, But Incomes and Inflation Remain Elevated
Nominal personal income rose in May, and real incomes continued to rise year-over-year supporting continued spending by US consumers in the month. Although nominal personal consumption expenditures (PCE) increased, real spending was unchanged in May signaling slower momentum in consumer spending in the second quarter of 2023 following the first quarter surge. Nonetheless, the spending that did occur was largely for services, a space the Fed is struggling to calm. While headline PCE inflation continued to slow (to 3.4 percent year-over-year), the core measure was roughly unchanged at 4.6 percent year-over-year, a pace well above the Fed's 2-percent target. Core services inflation continued to keep PCE inflation less food and energy notably elevated.
Insights for What's Ahead
-- Today's data support the Fed's desire to continue raising interest rates
to return inflation back to the 2-percent target. Slower overall real
spending notwithstanding, much of the spending was on services.
Moreover, core PCE inflation - the Fed's preferred consumer inflation
gauge - remained sticky.
-- We forecast at least one more interest rate hike, and leave the door
open for more, given the stubbornness of inflation, and continued
supports for consumer spending, including a robust labor market and
rising real incomes. Another hike as soon as the July meeting is
possible.
-- Although markets continue to price in rate cuts if the recession we
continue to forecast occurs, we posit the Fed will allow a lengthy pause
in rates after achieving a peak this year, and not consider any rate
reductions until well into 2024.
Spending Potentially Losing Some Momentum
Nominal personal consumption expenditures rose by just 0.1 percentage point in May after a sizable 0.6 percentage point increase in April. All the increase in nominal spending was on services, consistent with the swing in household demand from primarily goods during the pandemic, to more services postpandemic. In real terms (i.e., after adjusting for inflation) consumer spending was flat in the month, and between April and May suggest slowing real spending in Q2 following the 4.2 percent annualized surge in Q1 of this year.
Rising Real Incomes Still Lending Support
The nominal spending in May was supported by a 0.4 percent increase in nominal income. Wages and salaries were up 0.5 percentage point in the month and supplements to wages and salaries increased by 0.4 percentage point. Real income increased by 0.3 percent in the month, as was real disposable income (i.e., total income less taxes). Compared to last year, real personal income increased by 1.6 percent marking five months of positive year-over-year income growth after spending much of the prior two years in negative territory.
Falling Energy, Slower Food Price Increases Taming Total Inflation
Headline PCE inflation continue to slow in May, reflecting less pressure from gasoline, but also food prices. Total PCE inflation rose by just 0.1 percent month-over-month after a 0.4 percent increase and slowed from 4.3 percent to 3.4 percent year-over-year. Energy prices fell by 3.4 percent month-over-month and fell from -6.3 percent to -13.5 percent year-over-year. Food prices ticked up by 0.1 in the month but slowed dramatically from 6.9 to 5.8 percent year-over-year.
Core Inflation Remains Challenged by Stubborn Services Prices
However, core inflation, which excludes food and energy remained sticky at 4.6 percent year-over-year. The gauge has remained in a tight range of 4.6 to 4.7 percent year-over-year for the last six months. This is because month-over month changes have continued to exceed 0.3 percentage points. Housing costs, in the form of rents, continue to contribute to monthly and year-over-year increases in inflation. Behaviors in rent prices tend to lag that of new and existing home prices by about 18 months. The good news is that within a few months cooling home prices that has already occurred will start to be reflected in consumer price indexes for rents.
Even away from rents, food and other nondurable goods continue to boost goods price inflation, and in-person services like hotels, restaurants, and health care continued to buoy services inflation. Services inflation away from housing (i.e., 'super core') are particularly difficult for the Fed to address with interest rate hikes, because consumers do not usually finance services. Indeed, even credit card use is difficult to curb as interest rates on credit do not move with the federal funds rate.
View original content to download multimedia:https://www.prnewswire.com/news-releases/pce-report-supports-further-fed-rate-hikes-ahead-301868160.html
SOURCE The Conference Board
|
|
|
|
|
|
 |
The New Identity Theft Crisis: AI Scams, Child Victims, and Credit Damage Are All Spiking | Jan 22, 2026
|
|
AllSci Launches Hypothesis Publishing: A Seamless Way to Share, Connect, and Advance Scientific Ideas | Jan 22, 2026
|
|
Fintech Startup BON Credit Secures $3.5 Million In Funding | Jan 22, 2026
|
|
Darwin CX Caps a Banner Year with AI Launch, Sold-Out Events, and Industry Book Launch | Jan 22, 2026
|
|
Nudge Security Unveils Industry's Most Comprehensive AI Security Governance Platform | Jan 22, 2026
|
|
PayDo Launches Unified Payment Infrastructure Suite for Digital Businesses | Jan 22, 2026
|
|
IoTeX Publishes MiCA-Compliant Whitepaper for IOTX, Enabling EU-Wide Alignment Under the New Regulatory Framework | Jan 22, 2026
|
|
Canadian Fintech Tuhk Inc., Founded by Ethoca and NuData Security Veterans, Raises US$6 Million Seed Round Led by FINTOP, with Lloyds Banking Group and Capital One Ventures | Jan 22, 2026
|
|
TSX Venture Exchange Market Data Now Available Across Over 40 Blockchains via Chainlink | Jan 22, 2026
|
|
Paxos Selects Mesh To Enable Trusted Crypto Deposits | Jan 22, 2026
|
|
|
|
