News is typically divided into two categories: good and bad. The reality is it’s not quite that binary, with every headline having some level of nuance found within the story. This morning’s Personal Income and Outlays report from the Bureau of Economic Analysis (BEA) is a prime example of this nuance, with data that showed a slowdown in the resilient consumer spending that has dominated the start of this year and inflation that softened but continued to remain stuck above the Fed’s two percent target. If you’re asking us to pick, we would place this release in the “good news” bucket, but certain components found within this report could go either way.
The headline Personal Consumption Expenditures (PCE) price index increased 0.3% in April, in line with expectations and the same month-over-month change realized in both February and March. Compared to last year, the price index was up 2.7%, again in line with estimates. On an annual basis, the goods category increased 0.1% while services increased 3.9%—both relatively consistent with March.
Core PCE, which excludes both volatile food and energy, increased 0.2% on the month (slightly lower than both forecasts and the increase of 0.3% realized in March) and 2.8% on the year. While this annualized rate matched expectations, it marks the lowest level in three years.
Included as part of the release was personal income data for April, increasing 0.3% from the preceding month while personal income less personal current taxes—which is the disposable personal income (DPI) measure—increased 0.2%. This was a reduced increase compared to the 0.5% month-over-month change realized across both measures in March. Consumer spending also cooled in April, with PCE rising 0.2% (considerably below the 0.7% over the previous two months).
This latest report clearly indicates that economic activity has slowed and, with it, a slight moderation in inflation. After today’s announcement, the CME Fedwatch tool pegs the chance of a September rate cut at 47%. This reflects the shared understanding that the Fed is awaiting consecutive meaningful decelerations in inflation. While today’s release is encouraging and pointing in the right direction, it will take additional data to move the needle and generate the confidence needed for the Fed to make that ever-elusive rate cut.
