, the Fed’s favorite indicator, came in at +0.2% for August, as forecast. The July number was revised down from +0.3% to +0.2%. The y-o-y number is +2.9%, still a long way from the Fed’s 2% target. But still no feared spike from the tariffs. Headline PCE for August was +0.3% as forecast, up a tick over July’s +0.2%, +2.7% y-o-y.
for August came in at +0.6%, above the +0.5% forecast and the third month of an increase. Recall that both May and June saw upward revisions by a tick, July did not. The sustained spending reflects well on the consumer, who has been characterized as strained with high credit card balances and rising delinquencies.
Granted, it’s the solvent consumers, especially those with material stock portfolios, who are doing the lion’s share of spending increases (Moody’s says consumers with the top 10% of income do almost half of all spending). It’s also not clear how much of the spending increase is a flow-through of higher prices. Nevertheless, stronger spending is good for the economy.
In the , we’re seeing a continued reduction in inflation expectations, though the absolute numbers remain well above what’s happening today, with the 1-year number at 4.7% and the 5-year at 3.7%. The expectation and sentiment numbers moved down as forecast. The consumers in the survey appear to still have concerns regarding tariffs and employment.
The US Treasury market moved yields higher modestly when the PCE numbers rolled out, but has since gone flat on the day. The bets on the Fed cuts were mixed, with an October cut down to 86% while a 2nd cut in December rose to 61%. Another case of good news for the economy reducing the pressure on the Fed to cut.
Stocks initially moved up strongly on the stable inflation data and improved spending, then the pressure on tech reasserted itself. The NASDAQ slid into the red, led by The Magnificent 7 and semiconductors.
On the commodity front, gold is back above $3,800/oz and silver has hit a new high for the year. Crude oil has moved above $66/bbl and natural gas is flat. The US dollar index has moved below 98. Crypto continues to be under pressure with Bitcoin below $109K, now down 6% on the week, and Ethereum is down 12% for the week.
The elephant in the room continues to be a shutdown of the federal government next Wednesday, which appears increasingly likely, though not expected to last long. While it may create short-term volatility, it will likely be seen as a buying opportunity when it’s over.
The trend remains positive.