US Core PCE Inflation Moderates, Spending Falls Short of Expectations

Today’s U.S. economic data came in mixed.

The major Core PCE Price Index rose 0.2%, matching expectations, but last month’s report was upwardly revised to 0.3%. It rose 4.7% on a year-on-year basis in November after increasing 5.0% in October.

The personal consumption expenditures (PCE) price index rose 0.1% last month after climbing 0.4% in October. In the 12 months through November, the PCE Price Index increased 5.5% after advancing 6.1% in October.

Core Durable Goods Orders rose 0.2%, higher than the unchanged forecast.

Personal Income jumped 0.4%, slightly better than the 0.3% forecast, but lower than the previously reported 0.7%.

Personal Spending rose 0.1%, lower than the 0.2% forecast. However, last month’s report showed an upwardly revised 0.9% increase.

Instant Analysis

The Core PCE Price Index report showed that monthly inflation is still trending higher, but at a slower pace. Nonetheless, the annual data supports the notion that price pressure peaked several months ago.

The jump in personal income is also inflationary and serves as proof the Fed is going to have to stay aggressive to prevent wage inflation from running away.

Personal Spending rose less-than-expected, which is a good sign, but the upward revision in last month’s figure should make traders nervous. Remember that the Fed wants the economy to slow.

After the Fed’s final policy decision in 2022 last week, strategists pointed out that the most surprising data-point among economic projections from officials was an upward revision to their core PCE expectations to 3.5% from 3.1% previously at the end of 2023. This suggested to many that the Federal Reserve will need to keep rates at a high terminal rate through 2023.

Market Reaction

Treasury yields rose after the reports. Suggesting investors are betting on a more aggressive Fed. But the dollar and gold showed little reaction. The dollar is showing little reaction to the reports, while gold is holding on to earlier gains.

Stocks showed a mixed reaction with futures retreating initially before turning higher as we approach the cash market opening.