The August Personal Consumption Expenditures signals lower inflation

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Published Date 9/27/2024

August inflation slightly better than the forecasts, except the annual core inflation. Although in line with estimates, it did increase to 2.7% from 2.6% in July. PCE month/month overall was expected at +0.1%, reported at 0.1%, year/year overall +2.2% as forecast; PCE core (ex-food and energy where the Fed looks) month/month +0.1% better than +0.2% forecasts and down from +0.2% in July, year/year core +2.7% from 2.6% in July. The initial reaction pushed the 10 year note down 3 bps and MBS prices up 9 bps. The decline in month/month core below 0.2% in July and June. The monthly core PCE inflation measure coming down means the annualized three-month core is running below the Fed’s 2% target, keeping the Fed more focused on employment from rolling over and adds to speculation of two more FF cuts this year.

Yesterday weekly jobless claims at 218K was lower than thought suggesting businesses are not hiring but equally not laying off employees. The Fed’s recalibration as Powell riffed to it puts focus on jobs and less on inflation. The data this morning confirms inflation is softening as widely thought and talk is another 50 bps this year. Traders now are focusing on job growth more than inflation.

August personal income increased 0.2% with estimates at +0.4%, personal expenditures month/month also lower than thought at +0.2% with estimates at +0.3%. Softer-than-expected personal income and spending limited the leeway for restrictive borrowing costs.

The advance August US trade deficit at -$94.3B was less than -$102.8B expected, down 8.3% and the smallest since March.

At 9:30 am the DJIA opened +119, NASDAQ +25, S&P +9. 10 year note at 9:30 am 3.77% -3 bps. FNMA 5.5 30 year coupon at 9:30 am +6 bps from yesterday’s close and +4 bps from 9:30 yesterday.

At 10 am the final September University of Michigan consumer sentiment index thought to be unchanged from mid-month at 69.0, reported at 70.1. Last Tuesday September consumer confidence data fell hard, the index at 98.7 was down from 105.6. Confidence down, sentiment up? More confusion.

Source: TBWS

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