PCE Stays Healthy, Durable Goods Drop
Friday, December 23, 2022
Pre-market futures slipped into negative territory on the release of new economic data ahead of today’s opening bell — but then reversed course mere minutes later. November Personal Consumption Expensitures (PCE)., oft-cited by voting Fed members, including Fed Chair Jay Powell, came in at +0.4% — a gain of 10 bps month over month. Stripping out volatile food and energy costs, the “core” read brings us +0.2%, down 10 bps from the upwardly revised +0.3% for October.
That’s income; spending gained +0.1% last month, though this is down big from October’s +0.9%. What this tells us — at a glance, anyway — is that holiday shopping this year was pulled forward to mid-fall; likely this was based on retailers not being caught with short supply like they were last year. It also tells us that at least some aspects of our long-suffering supply chain issues have been solved, at least for this year’s retail commerce.
The Deflator, month over month — a key indicator for the Fed in quantifying monetary policy — rose +0.1% for November. This is still well below the June high of +1.0%. This indicates that inflation is cooling. The Deflator was expected to be at +5.5% year-over-year, which is 150 bps lower than June’s reading. Core deflator month over month was also in-line at +0.2%, down from April’s high +0.6%. More evidence things are progressing in the right direction, albeit slower than we’d prefer.
Preliminary (subject for revision) Durable Goods Orders The -2.1% consensus was nearly double the rate of decline for the month last month. This is the lowest monthly read since the Covid-ravaged April 2020 — not a good sign, unless we’re looking for bad news to be good news. Orders for ex-defense were down by 2.6%, but orders for ex-Transportation rose to +0.2%. Core capital orders, non-defense, ex-aircraft (a proxy for “normal” business expenditures) was also +0.2%, slightly higher than expected.
Shipments came in somewhat better than anticipated: -0.1% month over month, whereas -0.3% was expected — in any case, shrunken notably from October’s +1.4%. Consider holiday seasonality with these numbers. Hotter retail spending (thus requiring greater shipments) tends to distort the figures. We’ll see a “purer” print this time a month from now.
Pre-markets have been flipping and flopping all morning; apparently, this data isn’t bringing the masses of investors to any clear conclusions today. Perhaps that will change with the University of Michigan’s consumer sentiment survey for December due after the opening bell. We’ll also get 5-year inflation expectations from the same folks, as well as New Home Sales for November, widely expected to come in lower month over month.
History shows volumes should be very low. It’s Christmas weekend, after all. This reminds me that Zacks.com and Wall Street will be closed Monday to observe the holiday. We will return Tuesday to close out the year, hopefully with that long-sought “Santa Claus Rally” (but who really knows?). Markets will close at 1 p.m. ET today. Also, Merry Christmas and Happy Holidays to Everyone!
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