Consumption data was released this morning. In April, real consumer spending declined 0.1%, which a slightly weak start to Q2. Personal spending rose 0.2% and Incomes rose 0.3%, which were both weaker numbers than March. The savings to income ratio stayed at 3.6%, and should start to flatten out in the next few months after dropping 1.6% in the last year. Although we will be watching closely to see if the lower savings rate creates a continued cautionary spending pattern for households.
On the inflation front, Core Personal Consumption Expenditures (PCE) Price Index matched analysts’ expectations at 0.2% mom and 2.8% yoy. We are still making forward progress on inflation, and we expect this to continue in the months ahead. Market-based PCE was also a highlight as noted by our friends at Renaissance Macro.
‘Market-based PCE, excluding food and energy rose 0.17% over the month, and up 2.5% over the last year. That market-based inflation has been running below PCE would lend support to the idea that some of the increase in inflation this year has been idiosyncratic in nature.’
Source: Renaissance Macro Research, as of 5/31/2024
Core PCE is the Fed’s preferred inflation measure and with this report it is still a ‘wait and see approach’ for the Fed and interest rate cuts. The good news is that yields across the treasury curve moved lower after the report, and a broader based rally has taken over the last few days. We believe this will continue to be the dominant market theme through year end, and likely longer.
Sean Dillon, CMT, CFTe
SVP, Investment Strategy
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