The agency reports that June’s personal expenditure increased by 1.1% month over month as opposed to the projected 0.9%, demonstrating the resilience of American consumers in the face of rising consumer prices.
Given that personal consumption is the primary source of economic activity in the United States, greater consumer expenditures at the end of Q2 can contribute to assuaging concerns about a recession.
Additionally, the PCE Price Index, which tracks the prices Americans pay for a range of goods, increased by 1.0% MoM and 6.8% YoY, reaching its highest level since 1982. The Federal Reserve’s favored inflation measure, the core PCE indicator, which precludes food and energy and serves as a monetary policy determinant, increased by 0.6% in the aftermath of being adjusted for seasonality, generating the annual reading to 4.8% from 4.7% two months ago. This indicates that inflationary pressures are still present in the nation even after tighter financial circumstances.
The BEA data for July 29 were inconsistent. In nominal terms, household expenditure increased at a strong rate, although price increases were mostly responsible for the growth. In any event, it is refreshing to know that the American consumer is still strong despite growing difficulties, an example of which is real income declining. In the second part of 2022, this might allay concerns that household spending is poised to crash.
Some disappointing news came in on the inflation side. The Fed will need to keep hiking rates in the upcoming months to decrease demand to reestablish price stability because the PCE index has not shown any signs of directionally improving. This means that the earliest monetary policy change could occur in 2023.
Following the release of the personal consumption expenditures (PCE) report, the Nasdaq 100 futures contracts partially reversed their pre-market gains as Treasury yields increased amid worries that the U.S. central bank would be unable to regulate the pace of interest rate increases in the face of significant inflationary pressures. The adverse shock on the macro level is being mitigated, though, by strong profits from important technology firms like Apple and Amazon.