Core PCE Inflation Matches Estimates for April

Core PCE Inflation, Personal Income, and Spending Reports for April 2024

Today, the Bureau of Economic Analysis (BEA) released its report on Personal Income and Outlays for April 2024. Key indicators, including Core PCE Inflation, Personal Income, and Personal Spending, showed mixed results against pre-report estimates, providing crucial insights for traders.

Core PCE Inflation

• Pre-report estimate: 0.2%
• Actual: 0.2%

Core PCE Inflation, which excludes food and energy prices, matched the forecasted 0.2% increase. This suggests that underlying inflation pressures remain moderate. The overall PCE price index rose by 0.3%, aligning with last month’s trend. Year-over-year, the Core PCE price index remained steady at 2.8%, indicating consistent inflation levels.

Personal Income

• Pre-report estimate: 0.3%
• Actual: 0.3%

Personal income increased by $65.3 billion, or 0.3%, in April, meeting the pre-report estimate. This growth was primarily driven by rises in compensation, income from assets, and government social benefits. However, disposable personal income (DPI), which accounts for taxes, grew by only 0.2%, down from March’s 0.5% increase. In real terms, after adjusting for inflation, DPI fell by 0.1%.

Personal Spending

• Pre-report estimate: 0.3%
• Actual: 0.2%

Personal spending rose by $39.1 billion, or 0.2%, slightly below the forecasted 0.3%. This increase was mainly in services, which saw a $49.1 billion uptick, partially offset by a $10 billion decline in goods spending. Housing, healthcare, and financial services led the growth in services, while spending on recreational goods and vehicles declined.

Analysis and Market Forecast

Key Takeaways

• Income Growth: The steady rise in personal income suggests stability in the labor market and household earnings.
• Spending Trends: The modest increase in personal spending, particularly in services, points to cautious consumer behavior, likely influenced by persistent inflation concerns.
• Inflation Control: Core PCE Inflation holding at 0.2% aligns with Federal Reserve targets, signaling controlled inflation without significant volatility.

Market Impact

• Bullish Sentiment: The alignment of Core PCE Inflation with expectations supports a bullish outlook on inflation control. This stability is positive for the equities market as it suggests no immediate need for aggressive rate hikes by the Federal Reserve.
• Mixed Spending: The slight underperformance in personal spending growth may temper bullishness slightly. Investors might view this as a sign of cautious consumer sentiment amid economic uncertainties.
• Income Stability: The consistent growth in personal income underpins a bullish outlook for consumer-driven sectors. Continued income growth can sustain consumer spending and support economic expansion.

Overall, today’s data supports a cautiously bullish outlook. Stability in inflation and income growth suggests a steady economic environment, although slightly softer personal spending growth warrants attention. Traders should monitor upcoming economic data for further clarity on consumer behavior and inflation trends.