PCE Data Shows Surge in Consumer Spending

Today is not only Leap Year Day — the last time we saw one of these was less than a month before the country shut down for the Covid pandemic — but also the most important morning for this trading week. This morning brings us Personal Consumption Expenditures (PCE) for January which, while mixed, are being met favorably by pre-market trading: while the top three market indices were all wallowing in the red ahead of the report, they are currently +0.2% on the Dow, +0.3% on the S&P 500 and +0.57% on the Nasdaq.

At first blush, headline Personal Income month over month looks drastic: +1.0% versus +0.3% expected and originally reported a month ago — the strongest jump in exactly a year (January 2023) ands not seen previously since 2021. Personal Spending, on the other hand, came in as expected at +0.2% — a half-point lower than December’s unrevised +0.7%. Real Spending, adjusted for inflation, came down to -0.1% — the lowest print we’ve seen since August of last year.

We’ll take these data points in bite-sized portions: Americans bringing in more than 3x the expected monthly rate and spending slightly less in that month would suggest that the consumer appetite is cooling a bit, but perhaps in a responsible way: consumers aren’t waiting until they are out of work before pulling back on spending, or even worse, continually running up debt despite a dicey labor market. Although these signify a slowing economy, they look to be within the parameters of the “soft landing” we remain hopeful to see.

The overall PCE Index deflator, month over month, reached +0.3% in January, 20 basis points (bps) higher than the downwardly revised previous month, and the highest print since September of 2023. Year-over-year deflator was in-line with expectations at +2.4%, 20 bps lower than December and the lowest figure we’ve seen since February 2021, when these metrics were all moving the opposite direction.

Core PCE month over month — stripping out volatile food and energy expenses — came in at +0.4%, 30 bps higher than the downwardly revised +0.1% and the highest since January of last year. Core PCE year over year hit +2.8%, a tick down from the upwardly revised previous month and representing the 12th straight downward move on this very important metric. That said, we still have a ways to go: back in March 2020, core PCE year over year was +1.5% — nearly half of what it is in today’s report.

Initial Jobless Claims for last week bumped higher: 215K versus 210K expected, and higher than the slightly revised 202K the previous week. We knew sub-200K prints were unlikely, even in this favorable market, but nevertheless we’re back toward the highs we’d seen earlier this month. Continuing Claims notched above 1.9 million — 1.905 million, to be exact — for only the second time in the past four months. This follows the downwardly revised 1.860 million the previous week, which was the lowest read since early this year.

Also ahead of today’s open, Best Buy BBY became the latest big-box retailer to post quarterly earnings, and it produced a beat on both top and bottom lines: earnings of $2.72 per share posted a +8.4% positive surprise from the Zacks consensus, with $14.65 billion in revenues outperforming expectations by +0.89%, partly on better-than-expected International sales. Early morning trading is bringing shares to a seven-month high, +4.7%, to the stock’s highest levels since summer of last year.

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