Announced this morning, Personal Income increased 0.5% in May, as expected and unchanged from the revised figure from the previous month. Personal Spending increased 0.2% in May, less than expected and the previous month was revised lower; however Real Personal Spending, which accounts for inflation, fell -0.4% for the month. Meanwhile, the PCE Deflator remains elevated, increasing 6.3% on an annual basis, one tenth less than expected but the same as the previous month. The Core PCE Deflator, which excludes food and energy prices, grew 4.7% on an annual basis also slightly less than expected but two tenths less than the previous month. Meanwhile, Initial Jobless Claims were 231,000 for the week ending June 25th, just slightly more than expected and similar to the previous week.
Overall, headline figures for both income and spending remain positive, but accounting for inflation shows spending fell from the previous month highlighting the weak consumer confidence data in recent weeks. Even with a slight reduction in the core PCE data, stubbornly elevated inflation persists, and consumers are taking notice. Like consumers, the Federal Reserve also remains focused on inflation and will likely press ahead with tightening policy in the weeks ahead through further rate increases and reducing their balance sheet. Whether these actions will push the economy into a recession is unclear at the moment and partly depends on the path of moderating inflation, the impact on consumers, and the health of the labor market in the months ahead.
In all, the 10-year US Treasury yield ticks lower and equity futures are also lower as we head into the market open.
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