- Prior was +2.8%
- PCE M/M +0.4% vs +0.3% expected
- Prior +0.2%
- Core PCE Y/Y +3.0% vs +2.9% expected
- Prior +2.8%
- Core PCE M/M +0.4% vs +0.3% expected
- Prior +0.2%
Consumer spending and income for December:
- Personal income +0.3% vs +0.3% expected
- Prior +0.3% (revised to +0.4%)
- Personal spending +0.4% vs +0.4% expected
- Prior +0.5% (revised to +0.4)
- Real personal spending +0.1% vs +0.3% prior
US Core PCE YoY
These are higher than expected numbers but not really surprising since Fed Chair Powell did mention they expected Core PCE for December to rise to 3.0%. Therefore, this report doesn’t change anything for the Fed. The market pricing is little changed after the economic data as traders continue to expect 58 bps of easing by year-end with the first rate cut coming in June at the earliest.
I personally think the market is too sanguine on rate cuts given the improvement in the labour market data and inflation being closer to 3% than to the 2% target.
WHAT IS THE PCE REPORT?
The Personal Consumption Expenditures (PCE) report is a monthly economic release from the U.S. Bureau of Economic Analysis (BEA) that tracks how much consumers spend on goods and services. It serves as a primary pillar of the U.S. economy, as consumer spending accounts for approximately two-thirds of domestic economic activity.
The report is most famous for its PCE Price Index, which the Federal Reserve considers its “gold standard” for measuring inflation. Unlike the more common Consumer Price Index (CPI), the PCE captures a broader scope of costs, including those paid on behalf of consumers (such as employer-provided healthcare). It also uses a “chain-type” formula that accounts for substitution behaviour, for example if beef prices skyrocket and shoppers switch to chicken, the PCE reflects that shift, whereas the CPI often lags in doing so.
Investors and policymakers watch two versions: “Headline” PCE (or the deflator) and “Core” PCE, which excludes volatile food and energy prices to reveal long-term inflation trends.
