Live Markets: Cooling trend: PCE, consumer sentiment

Capital Securities

20/12/2024 17:02

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    COOLING TREND: PCE, CONSUMER SENTIMENT
    Investors headed into the pre-Christmas weekend with visions
of cooling inflation dancing in their heads.    
    The Commerce Department's broad-ranging Personal Consumption
Expenditures (PCE) report  USPCE=ECI  came in below analyst
estimates right down the line.
    Starting with the inflation numbers, the November PCE price
index showed a 0.1% monthly gain, cooler than the prior month.
Consensus called for a repeat of October's 0.2% gain.
    Year-over-year, the index landed at 2.4%, gaining a little
heat from October's 2.3% print, but also below the 2.5% analyst
estimate.
    Stripping away volatile food and energy prices, core PCE
came in at 0.1% on a monthly basis, a significant cooldown from
the prior month's 0.3% reading, while annual core PCE repeated
October's 2.8% gain. That, too, landed south of consensus.
    "We got a bit of a moderation in inflation, it doesn't
necessarily make a trend," Peter Cardillo, chief market
economist at Spartan Capital Securities told Reuters. "This is
good news for markets, but it doesn’t change the path for the
Fed."
    Even so, that's within one percentage point of the Fed's
average annual 2% inflation target.
    
    
    Elsewhere in the report, personal income rose by 0.3%, a
sharp deceleration from the upwardly revised 0.7% surge the
previous month and weaker than the 0.4% economist forecast.
    Consumer spending increased 0.4%, stronger that October's
0.3% gain, but not as robust as the 0.5% increase Wall Street
was looking for.
    Disposable income grew at 0.2%, marking a slowdown from
October's 0.5% increase and half the rate of consumer outlays.
As a result, the closely watched saving rate fell to 4.4%.
    "Consumers are heading into 2025 on a solid footing.
Meanwhile, although inflation remains elevated, there are few
signs of a re-acceleration," writes Michael Pearce, deputy chief
economist at Oxford Economics. "The relatively low personal
saving rate is not a concern because household balance sheets
are still in decent shape."
    
    
    Finally, the mood of the American consumer has improved this
month, according to the University of Michigan's (UMich) second
and final stab at December consumer sentiment  USUMSF=ECI .
    UMIch reiterated its preliminary December reading of 74,
marking an improvement from November. 
    Below the surface, survey respondents' assessment of current
conditions was lowered a bit, while near-term expectations
improved.
    "Broadly speaking, consumers believe that the economy has
improved considerably as inflation has slowed, but they do not
feel that they are thriving," writes Joanne Hsu, UMich's
director of consumer surveys. "Sentiment is currently about
midway between the all-time low reached in June 2022 and
pre-pandemic readings."
    Back to the "i" word, both near- and long-term inflation
expectations ticked lower, to 2.8% and 3.0%, respectively.
    
    
    (Stephen Culp)
     *****

    
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Personal consumption    https://reut.rs/3ZNUZyl
Inflation gauges    https://reut.rs/4gpbwQB
UMich inflation expectations    https://reut.rs/4gLFgH3
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