PCE Fed Inflation Rate Falls to Lowest Annual Rate in Nearly 2 Years

Highlights

• PCE price index rose 0.2% in June, lower than expected.
• Personal income and consumption saw solid increases in June.
• Short-term forecast indicates a bullish outlook for the U.S. economy.

Overview

In June, the U.S. economy saw some notable movements, with key indicators reflecting changes in personal income, consumption, and prices. Let’s dive into the details of the latest report by the Bureau of Economic Analysis.

Personal income experienced a solid increase of $69.5 billion, equivalent to a 0.3 percent rise at a monthly rate. Disposable personal income (DPI), which considers personal income minus personal current taxes, also grew, reaching $67.5 billion, a 0.3 percent increase. The boost in personal income was primarily attributed to rising compensation, though it was somewhat offset by a decline in personal income receipts on assets.

Accompanying the rise in income, personal consumption expenditures (PCE) saw a substantial increase of $100.4 billion, equivalent to a 0.5 percent growth. Within this category, spending on goods surged by 0.9 percent, accounting for $49.1 billion of the total increase, while services experienced a 0.1 percent rise, contributing $51.2 billion. Notably, financial services and insurance, housing and utilities, and recreation services stood out as the leading contributors to the growth in services spending. Meanwhile, motor vehicles and parts, as well as gasoline and other energy goods, took the lead in driving up goods consumption.

Inflationary pressures also made an impact on the economy, as the Personal Consumption Expenditures (PCE) price index increased by 0.2 percent in June compared to the previous month. When excluding the volatile food and energy components, the core PCE price index also rose by 0.2 percent. Looking at the changes from a year ago, the PCE price index for June surged by 3.0 percent, indicating a noticeable increase in overall prices. Notably, services experienced a significant rise of 4.9 percent, while goods saw a decrease of 0.6 percent in prices. Food prices showed a considerable uptick of 4.6 percent, while energy prices, on the other hand, decreased by 18.9 percent from the same period last year.

Furthermore, it is worth noting that personal outlays, which encompass PCE, personal interest payments, and personal current transfer payments, surged by $109.4 billion in June. Meanwhile, personal saving reached $862.4 billion during the same month, and the personal saving rate stood at 4.3 percent.

As we head into the short-term forecast, the economic indicators point towards a bullish outlook. The increase in personal income and consumption expenditures suggests growing confidence and financial stability among consumers, which could potentially lead to increased economic activity in the near future.

In conclusion, the U.S. economy showed signs of resilience in June, with personal income and consumption expenditures posting significant gains. Inflationary pressures also made their presence felt, potentially impacting overall economic growth. With a bullish outlook in the short term, investors and traders may find opportunities in various sectors as the economy continues to recover and evolve.