The important thing inflation measure the Fed tracks rose 0.2% in October, lower than anticipated

Inflation rose roughly in line with estimates in October, in a sign that price hikes may at least stabilize, the Commerce Department reported on Thursday.

The core personal consumption spending index, a measure that excludes groceries and energy and is favored by the Federal Reserve, rose 0.2% for the month and 5% year-on-year. The monthly increase was below the Dow Jones estimate of 0.3%, while the annual increase was in line.

The gains also represent a slowdown from September, which posted a monthly gain of 0.5% and a yearly gain of 5.2%.

Including food and energy, total PCE rose 0.3% mom and 6% year-on-year. The monthly increase was the same as September, while the annual increase fell a step from the 6.3% pace.

The department also reported that personal income for the month rose 0.7%, well above the 0.4% estimate, and spending rose 0.8%, as expected.

In another major report, a widely used indicator of manufacturing activity recorded its lowest reading in two and a half years in November.

The ISM Manufacturing Index recorded a reading of 49%, which represents the level of companies reporting expansion for the period. The reading was 1.2 percentage points below October and the lowest level since May 2020, in the early days of the Covid pandemic.

Declines in backlogs and imports were the main drags on the index. The closely-watched price index slipped 3.6 points to 43%, suggesting inflation is easing, while the employment index also fell, falling 1.6 points to 48.4%, a contraction area.

Markets were mostly bearish after the morning’s data, with the Dow Jones Industrial Average down more than 250 points in early trade, while the S&P 500 and Nasdaq Composite posted smaller losses.

“This morning’s data was a Goldilocks report as it showed core inflation continues to fall,” said Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance. “If inflation continues to fall, markets will continue to rise as investors conclude that the Fed does not need to raise rates as much or keep them high for as long as previously expected.”

While the Fed uses a wide range of measures to measure inflation, it prefers the PCE index because it takes into account changes in consumer behavior, such as B. the replacement of more expensive items with cheaper goods. This is different from the consumer price index, which is a rough measure of price changes.

Policymakers see core inflation as a more reliable measure, as food and energy prices tend to fluctuate more than other items.

In other news on Thursday, the Labor Department reported that weekly jobless claims totaled 225,000, down 16,000 from the previous week and below the 235,000 estimate.

Another jobs report from outplacement firm Challenger, Gray & Christmas showed planned layoffs were up 127% monthly in November and up 417% year-on-year. Despite the massive increase, the company noted that the year-to-date layoff rate is the second-lowest ever in a 1993 record.

The data comes at a crucial time for the Fed, which is in the midst of a rate-hiking campaign to curb inflation.

In a speech on Wednesday, Chair Jerome Powell said he saw some signs that price hikes were slowing but added he needed to see more consistent evidence before the central bank could change policy. However, he indicated that he believes rate hikes could taper off, perhaps as early as December.

“The truth is that the path ahead for inflation remains highly uncertain,” Powell said.

The PCE data showed that the numbers remain volatile. Goods inflation rose 0.3% for the month after falling in the previous three months, while services inflation rose 0.4% after rising 0.6% twice in a row. Economists have been searching for a shift back to a more service-oriented economy after outsized demand for goods played a major role in the inflation spike in 2021.

Food inflation rose 0.4%, while energy goods and services rose 2.5%.

The Fed is watching the labor market closely for any further signs of a slowdown in inflation.

Jobless claims trended slightly higher, and the number of pending claims rose by 57,000 to 1.61 million, the highest since February.

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