The Fed’s preferred inflation gauge is cooling down as expected and consumer spending is also becoming more cautious
December 23 Financial Associated Press News (Edited by Shi Zhengcheng)On the morning of the last trading day before the Christmas holidays, the US Department of Commerce’s Bureau of Economic Analysis released data on US personal consumption spending for November. As a basis for the Fed’s decision-making process, the data released today is also fully in line with the Fed’s policy goal to “reduce inflation and residents shrink.”
(Source: BEA) In terms of year-over-year data, PCE data in November was up 5.5% and core PCE data excluding food and energy prices was 4.7%, both in line with expectations and showing that US inflation is on the way to a higher slowdown. At the same time, BEA also made changes to some data from July to October this year, and individual projects were slightly revised upwards.
(Core PCE price index, source: tradingeconomics) In terms of consumption data, the US personal index rose only 0.1% MoM in November, which is also the weakest performance since July this year . Rising consumer spending on meals and vacations partially offset a decline in spending on goods, with spending on new cars plummeting the most. The figure driven by consumption is also behind the upward revision of the final value of GDP for the third quarter in the United States, which yesterday caused a market shock.
The important reasons for maintaining consumer purchasing power are inseparable from lower natural gas prices and higher labor wages. In November, workers’ disposable income maintained a growth momentum similar to the October report, and the growth rate of disposable income after adjusting for inflation reached 0.3%.
The reason why the market is very concerned about inflation is of course inseparable from concern about the Fed’s monetary policy. When Fed Chairman Jerome Powell finished raising interest rates for the last time this year last week, he said “more evidence” was needed to believe inflation was on the right track. The rate hike in February next year will depend on subsequent data.
According to economic forecasts provided by the Federal Reserve last week, the expected median peak of this round of interest rate hikes will fall between 5.00% and 5.25%, which means it is still 75 basis points away from current level. Fed officials also expect the core PCE inflation rate to fall to 3.5% by the end of next year, which is clearly still some distance from 2%.
Ian Shepherdson, chief economist at Pantheon Macroeconomics, said consumers were also expected to become more cautious. Because they have now spent half of the excess savings accumulated during the epidemic and there are signs of easing in the very tight job market. Ian expects consumer spending to continue expanding in the current quarter, but it would be surprising if that continues into the first quarter of next year.
According to the official schedule, BEA will announce PCE data for December this year on January 27, 2023.
