MNI 5 Things: Little Risk Seen For US Core PCE Price Index

By Holly Stokes

     WASHINGTON (MNI) - The Personal Income and Outlays report for April will be

released Thursday, with the median forecast among analysts in an MNI survey

calling for a 0.4% rise in personal spending, a 0.3% rise in personal income,

and a 0.1% rise in the core PCE price index.

     Ahead of the release, we outline five themes for particular attention:

--NO CLEAR RISK TO CORE PCE PRICE INDEX

     Given the large amount of information already released in the PPI and CPI

reports, analysts' forecasts for the core PCE price index are typically very

accurate. In the past year, there have been three overestimates and four

underestimates, giving no clear directional risk. Further, apart from a large

0.4pp overestimate in June, misses have been limited to a narrow 0.1pp.

Consequently, analysts predictions for a 0.1% rise in core PCE price index are

likely to come to fruition. 

--CORE PCE PRICE INDEX Y/Y COULD SLIP

     Core PCE price index month/month is expected to rise 0.1% in April, which

would actually knock the year/year down a tick to 1.8% due to base effects, just

teetering on the edge of rounding to an unchanged 1.9%. While other inflation

measures have been heating up, the core PCE price index - the Fed's preferred

measure of inflation - has stayed notably just below the target. As the last

Personal Income and Outlays report that the Fed will see before their June

meeting, market participants will be watching to see if the preferred measure

continues to evade the 2.0% target. Though a 1.8% year/year would likely not

provide much market pressure, as attention remains on nonfarm payrolls, a softer

reading could temper concerns of a fourth rate hike in the year.

--ENERGY TO PROVIDE BOOST

     Last month, the overall PCE price index saw a lackluster flat reading,

largely held down by energy prices, which plummeted 2.8% month/month, chained.

This was the largest decline since May 2017. However, as suggested by a 1.4%

gain in CPI energy in the already released report, energy should help boost the

PCE price index.

--FIRST LOOK AT SECOND QUARTER PCE

Analysts look for a second month of 0.4% gains in current dollar PCE. First

quarter consumption was off to a lackluster start, with a soft 0.2% gain in

January and a flat reading in February partially offset by a 0.4% rise in March.

Now, April is expected to give a first look at second quarter's strength after

the habitual first quarter slump. A healthy print in the core retail sales

measure, which feeds into PCE, gives analysts hope that goods, alongside

services, should see a pickup.

--SAVINGS RATE COULD RETURN TO DOWNWARD TREND

     After falling to a 12-year-low in December, attention is once again on a

falling savings rate. In 2017, a negative relationship between average hourly

earnings and the personal savings rate began to form, highlighting a potentially

unstable rate of spending to income growth. However, with the boost to

disposable income from tax cuts and the lackluster consumer spending, the

savings rate rose slightly in previous months and began to alleviate concerns.

Now, as consumption looks to be picking back up amidst a narrative of

conflicting wage data, the savings rate may be setting for another decline from

its already low levels.

--MNI Washington Bureau; +1 202-371-2121; email: holly.stokes@marketnews.com

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