Economists aren’t the only ones anticipating tomorrow’s Personal Income Expenditure Report. The hopes of investors and everyday people are hinging on a continued slow and steady progression of income across America. Disposable personal income increased .2% last month while personal consumption expenditures increased .8%. Economists at FactSet expect a slightly higher increase of .3% from the March report for both the headline and core PCE price index, as well as 2.6% and 2.7% year-over-year increases, respectively.
Here’s 5 things to look out for:
The PCE is even more important after March’s CPI report
March’s CPI report showed that inflation has paused. A .4% gain in core CPI for March was mainly due to unusual increases in motor vehicle insurance and medical care services.
Now, the Fed will be closely tracking the PCE to see whether inflation will continue to dwindle towards their 2% target, and they may be starting to get nervous that it won’t.
A strong labor market and economic growth
In spite of disappointments with the progress of inflation, robust supply allowed for considerable growth in spending and employment. The average monthly job growth of 276,000 is expected to continue. Durable goods are helping to keep PCE high. Similarly, an uptick in airfare purchases and financial services is likely to be a major contributor to the PCE report for March.
Outlooks on the economy may be souring
USA Today reports that inflation may be a main reason that Biden is lagging behind Trump in the polls, as voters start to get anxious about inflation. Negative signs are coming out of the woodworks: the stock market has tumbled, and there was recent price acceleration in key categories like rent.
The cost of services is a bit alarming
Price increases for hospital services are expected to remain solid, as people undergo surgeries they put off during the pandemic. Hospitals are also coping with a labor shortage, and together these factors may be contributing to the 1% spike in the cost of hospital services in March. Meanwhile, the cost of other services such as personal grooming and dry cleaning have increased steadily in the past year, increasing 5.4% overall.
Further delay in rate cuts are on the horizon
Investors, prepare to wait. Inflation is “sticky” at the moment, so experts are predicting that the Fed will cut rates later than expected, and by less. Chairman of the Fed, Jerome Powell, has confirmed that they are looking for more evidence that inflation is declining before cutting interest rates. Analysts at Bank of America say that rates will normalize at 3.75%, up from 3.25%.
