In this morning’s data, the PCE Deflator increased 0.4% in May, slightly less than expected, and was up 4.1% on an annual basis. The annual increase was again higher than the previous month. The Core PCE Deflator, which excludes food and energy prices and is closely monitored by the Federal Reserve for policy decisions, increased 0.3% in May, as expected. The core rate grew 3.4% on an annual basis, which is one-tenth higher than the previous month’s annual figure.
In addition, Personal Income increased 0.7% in May, higher than expected, and a strong rebound from the flat level in the previous month. Personal Spending also increased 0.7% in May, above expectations, and is three-tenths more than the previous month’s revised increase. The personal savings rate as a percentage of disposable income was 3.0%, which is still below the level seen in the economic expansion in the previous decade.
Meanwhile, the finalized estimate of GDP growth for the first quarter of 2026 was 2.1% on an annualized basis, higher than expected. Additionally, Initial Jobless Claims were 215,000 for the week ending June 20th, slightly less than expected, and -12,000 less than the previous week’s revised figure.
Overall, inflation remains elevated as the headline PCE deflator increased a bit less than expected in May, but the annual rate is now above 4.0%. The annual rate for the core measure is higher than the previous month and well above the Federal Reserve’s target. While oil prices are now moderating following some resolution to the Iran conflict, it may still take time for inflation measures to ease from these elevated levels. Income and spending both increased more than expected, but the savings rate is still low. The economy grew a bit more than expected in the first quarter, and jobless claims moved lower from the previous week’s figure, both denoting some stability. Considering these data points, how well consumers can keep up their spending will be key for the economy and markets in the weeks ahead as we approach upcoming quarterly earnings reports.
In all, the yield on the 10-year US Treasury ticks lower following the report and equity futures are higher as we head into the market open.
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