In this morning’s data, the PCE Deflator increased 0.2% in July, as expected, and was up 2.5% on an annual basis, the same as the annual figure from the previous month. The Core PCE Deflator, which excludes food and energy prices and is closely monitored by the Federal Reserve, also increased 0.2% in July, as expected. Core rates grew 2.6% on an annual basis, the same as the previous month’s annual figure.
Meanwhile, Personal Income grew 0.3% in July, slightly above expectations, and is one tenth higher than the previous month. Personal Spending grew 0.5%, as expected, and is two tenths higher than the previous month’s increase. Real Personal Spending, which accounts for inflation, increased 0.4% in July, one tenth more than the previous month’s revised figure and the personal savings rate as a percentage of disposable income was 2.9%.
Overall, the PCE inflation measures were as expected in July, and annual figures were the same as the previous month. Inflation remains calm, which should allow the Federal Reserve to focus more closely on the employment part of their mandate. Meanwhile, both income and spending grew in July with spending higher than the previous month, highlighting the resilience of the consumer. Per recent earnings reports, consumers are becoming more selective, seeking value in their purchases but are still spending money. With a lower savings rate than in previous months, a healthy labor market will be even more important to support future spending. The health and capacity of the consumer will be a key variable for the Federal Reserve as they contemplate the path for easing monetary policy in the coming weeks.
In all, the yield on the 10-year US Treasury ticks higher following the report and equity futures are higher as we head into the market open.
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