① In September, the U.S. core PCE rose 2.8% year-over-year, lower than expected and a decline from the previous month, providing support for policy easing; ② Although expectations for rate cuts have stabilized, real consumer spending growth has nearly stalled, raising concerns about an economic slowdown; ③ Affected by the government shutdown, economic data after October will not be clear until mid-December.
Late Friday night Beijing time, the U.S. Department of Commerce's Bureau of Economic Analysis (BEA) released the much-delayed September data on personal income and expenditures. The slightly lower-than-expected inflation had little impact on next week’s Fed rate cut expectations, while the stagnation in consumer spending signaled that the U.S. economy had already begun to slow even before the government shutdown in October.
(Source: BEA)
In terms of data, the U.S. Personal Consumption Expenditures Price Index (PCE) rose 2.8% year-over-year and 0.3% month-over-month in September, both in line with expectations. The core PCE, which excludes food and energy prices, increased by 2.8% year-over-year, slightly below market expectations and lower than the 2.9% in August.
Federal Reserve officials use the PCE price index as the primary policy tool to measure inflation. While officials monitor both indicators, they generally consider the core PCE to better reflect long-term inflation trends. Therefore, against the backdrop of the Fed's interest rate deliberations next week, a core PCE below expectations naturally supports the narrative for rate cuts.
In terms of components, goods prices rose by 0.5% in September, reflecting the ongoing transmission of tariffs to prices. Service prices increased by only 0.2%, food by 0.4%, and energy by 1.7%.
This report was originally scheduled for release on October 31 but was delayed until this week due to the longest government shutdown in U.S. history. As for the inflation situation after October, it will not be known until December 18 when the November CPI (including some October CPI data) is released.
The PCE report on Friday also showed signs of a cooling U.S. consumer market.
The report noted that the 'real' personal spending growth, excluding price changes, came to a standstill in September. This indicates that even before the U.S. government shutdown in October, Americans were already facing financial strain.
Media analysis pointed out that the pullback in consumer spending indicates that the primary growth engine of the U.S. economy had already started to decelerate before the longest government shutdown in history began on October 1. Despite recent data showing robust sales performance during 'Black Friday,' with consumers actively seeking discounts, concerns about the job market are intensifying. Current consumption growth is mainly driven by higher-income households.
Following the release of the BEA report, the U.S. 'dollar store' concept $Dollar General (DG.US)$ 、 $Dollar Tree (DLTR.US)$ both surged over 6%, hitting new highs for the year.
The BEA stated that the slowdown in spending growth was largely due to the largest drop in goods spending since May. Spending on motor vehicles and parts, clothing, and footwear all declined.
This sign also aligns with last week's September retail data: retail purchases, not adjusted for inflation, slowed in September, with substantial declines observed in categories such as electronics, clothing, and sporting goods.
The September PCE report also indicated that real disposable income for U.S. consumers saw almost no growth for the second consecutive month. Wages and salaries (an unadjusted-for-inflation metric) rose by 0.4%, while income from assets (a crucial support for affluent households) experienced a rebound.
Editor/Joryn
