9/27/24: PCE Inflation Cooling, Housing Market Trends, and Consumer Confidence Drop

Market participants digested an abundance of economic data this week. The Personal Consumption Expenditures Price Index (PCE) was released this morning, providing the Federal Reserve with more evidence of a broad cooling in inflationary trends.  The headline PCE deflator was up 0.1% month-over-month in August and up 2.2% year-over-year. The Core PCE deflator, the Fed's preferred measure of inflation excluding food and energy, was also up 0.1% in August from the prior month, and up 2.7% year-over-year. Personal income rose 0.2% in August, and real personal spending increased just 0.1%, underscoring a slowdown in consumer spending on both services and goods.

Several data releases provided a read on the housing market. The Case-Shiller 20-City Home Price Index demonstrated further deceleration in home price inflation. The index rose 0.3% on the month in July, and the annual rate of increase eased to 5.9% from June's 6.5%. Sales of new single-family homes dropped 4.7% to 716,000 in August. The decline likely reflects constraint by potential homebuyers as they anticipate lower mortgage rates and more inventory in the existing home market. The MBA 30-year fixed mortgage rate dropped to 6.13%.

The third estimate of second quarter Gross Domestic Product (GDP) was reported, reflecting strong growth of 3.0%, unrevised from the second estimate. Growth continues to be powered by personal consumption expenditures, but moderation is expected in the second half of the year. The Chicago Fed National Activity Index (CFNAI) rose to 0.12 in August after a downward revision to -0.42 in July, reflecting some rebound effects from Hurricane Beryl. The three-month moving average fell to -0.17 in August from -0.13 in July, indicating an outlook for slightly below-trend growth.

This week’s data indicated a mixed outlook for the consumer. The Conference Board's Consumer Confidence Index for September came in well below expectations, plunging to 98.7 after an upward revision to 105.6 in August. The decline reflects recent softening in labor market conditions, and less optimism about the job market and income growth. Both present situation and expectations components declined. On the other hand, the University of Michigan Consumer Sentiment Index was revised higher to 70.1 in the final report for September, beating expectations and rising from 69.0 in the preliminary estimate. Inflation expectations remained anchored in September, with the one-year inflation expectations measure unchanged at 2.7% and the five-year measure unchanged at 3.1%.

US Treasury yields remained relatively range-bound this week, with the 2-year finishing the week at approximately 3.59% and the 10-year at about 3.77% as of this morning. The spread between the 2-year and 10-year treasury continued to normalize to +18 basis points, while the front-end of the yield curve remained inverted with the 2-year/5-year spread at -6 basis points. Next week’s employment report will provide key data for the Fed to consider as they focus on supporting a weakening labor market.

Next week: Employment Report, ISM Manufacturing Index, Chicago PMI, Dallas Fed Manufacturing Activity, S&P Global US Manufacturing PMI, S&P Global US Services PMI, Construction Spending, JOLTs Job Openings, Dallas Fed Services Activity, Wards Total Vehicle Sales, MBA Mortgage Applications, ADP Employment Change, Challenger Job Cuts, Jobless Claims, Factory Orders, Durable Goods, ISM Services Index

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