Prices, spending pick up again

There is good news and bad news from today's U.S. Department of Commerce report on #personalincomes and #expenditures for July. Just three important #data points affecting #workers and the #economy: 1. The best news in the report is that Americans' #disposablepersonalincome rose 0.3% month-over-month adjusted for #inflation, largely because #wages and #salaries rose. Workers are being paid more and #families have more money in the #bank. Those are important goals of the #BidenAdministration's #economicpolicy, they are succeeding, and that's good for workers and the country. 2. Americans spent an additional 0.2%, also adjusted for inflation. So, Americans have more #money, and they are spending a little more. 3. The problematic news is that #prices excluding #food and #energy rose slightly, but let less than it has in the preceding four months. With food and energy included, prices fell by 0.1%. Year-over-year, prices are up 6.3% with food and energy (4.3% without food and energy). Inflation remains stubborn, but it seems to be declining very slowly. Very slowly. So, bottom line: #workingfamilies have more money, and inflation remains.

The main drivers of inflation are wage growth and consumer demand. The only way to reduce those is a recession. If unemployment rises, consumer demand will decline and wages will moderate. All this talk of "soft landing" makes no sense. If the Fed is really committed to reducing inflation it (or some other factor) is going to have to cause a recession. That will be painful, but better some pain now than a lot later.

The main drivers of inflation are wage growth and consumer demand. The only way to reduce those is a recession. If unemployment rises, consumer demand will decline and wages will moderate. All this talk of "soft landing" makes no sense. If the Fed is really committed to reducing inflation it (or some other factor) is going to have to cause a recession. That will be painful, but better some pain now than a lot later.

Beans for dinner instead of meat? Do you pay the water bill but not the light bill? How can families get by when they're caught in the middle? https://lnkd.in/e8ePUxbA #inflation #interestrates

Personal income was up 0.3% in August from July and up 0.3% in July from June, in line with market expectations. Wages and salaries were also up 0.3% in August, slower than the up 0.8% in July and suggesting an easing in the upward pressure on employee compensation. Personal consumption expenditures rose 0.4% in August after a decline of 0.2% in July. Spending was mainly in services which had a 0.8% rise, with a small 0.1% increase for durables. Spending on nondurables fell 0.8% due to the decline in energy prices, particularly for gasoline. The PCE deflator – the Fed preferred measure of inflation – was up 6.4% year-over-year in August, slightly below the 6.5% in July. However, the core PCE deflator – excluding food and energy – was up 5.0% from August 2021, higher than the up 4.8% in the July year-over-year reading. Fed rate hikes have had some impact on improving inflation pressures on the demand side, but progress is slow and uneven. #personalincome #personalconsumption #pcedeflator

The PCE deflator rose 0.3% in August, rebounding after edging down by 0.1% in July. Energy prices fell for the second straight month, dropping 5.5% in August, helping to moderate the headline index. Yet, food costs increased 0.8%, continuing to rise solidly year to date. Excluding food and energy prices, the PCE deflator increased 0.6% in August, bouncing back strongly after being flat in July. ? Overall, the PCE deflator has risen 6.2% over the past 12 months, decelerating for the second month from the 7.0% year-over-year pace seen in June, which was the strongest since December 1981. Excluding food and energy, core PCE inflation was 4.9% in August, up from 4.7% year-over-year in July but down from 5.0% in June. The core PCE deflator was 5.4% year-over-year in February and March, both of which were the fastest pace of inflation rates since April 1983. ? Inflation continued to be a major concern in the economy, tied with workforce challenges and closely following supply chain issues in the latest NAM Manufacturers’ Outlook Survey. While there has been some moderation from 40-year-high paces seen in recent months, pricing pressures remain stubbornly high, with core inflation picking up again in August. This trend was also seen in consumer price data. ? For its part, the Federal Reserve intends to stay aggressive in its attempts to wring inflation out of the U.S. economy, with another 75-basis-point rate hike expected at its November 1–2 meeting. If so, it would be the fourth consecutive meeting with such an extraordinary rate hike. A 50-basis point increase is currently anticipated for the December 13–14 meeting. But core inflation should remain highly elevated and above the Federal Reserve’s stated goal of 2% over the long term. The current outlook is for the core PCE deflator to be roughly 4.0% year-over-year in December.??#PCE #inflation #prices #federalreserve #FOMC #economy https://lnkd.in/gQw-yE4c

U.S. August Spending: Spending volume grew slightly amid higher-than-expected inflation Despite the sharp drop in energy prices, August's personal consumption expenditures price index—the Fed's key gauge for inflation—rose by 0.3% after falling by 0.1% in the previous month. Positive #inflation ate into #spending, bringing spending growth from a 0.4% increase in dollar terms to up by only 0.1% on inflation-adjusted terms. July's real spending number was revised down from up 0.2% to down 0.1%. The increase in inflation was driven by persistent core inflation, which was up 0.6% on the month, and 4.9% on a year-ago basis too high for the #Federalreserve to reconsider its policy path. We expect interest rate will have to rise higher than the annualized core PCE inflation, which means between 4.75% to 5% early next year with risk of a higher rate. That implies more rate hikes coming in the first quarter of next year. At the same time, consumers have reached into their saving accounts in the past couple of months to keep up with their spending costs. August's savings rate was 3.5%, significantly lower than the pre-pandemic average of 7.4%. There remained $1.9 trillion of excess savings waiting to be spent. Without a substantial catalyst, spending growth might stay afloat in the last half of the year. In our view, such a catalyst would likely be a contraction of the labor market when millions of jobs would have to be sacrificed to bring inflation back down, which should happen in 2023 when the job market feels the impact of restrictive monetary policies.?

August Core PCE Y/Y at 4.9% which implies that market expectations of the federal fund rate will need to adjust upward. We no expect that the Fed will need to hike its policy rate to a range between 4.75%-5% by Feb 2023 with risk a higher rate into middle of next year.