Free Trial

MNI 5 THINGS:US Core Prices Seen +0.2%; No Clear Forecast Risk

By Shikha Dave and Harrison Clarke
     WASHINGTON (MNI) - The US Personal Income and Outlays report for July will
be released on Thursday, with the median forecast among analysts in an MNI
survey calling for a 0.2% rise in the core PCE price index, and a 0.3% gain in
personal income and a rise of 0.4% in current dollar PCE.
     Ahead of the release, we outline five themes for particular attention:
     --NO CLEAR RISE FOR CORE PCE PRICES 
     Analysts are expecting core prices to rise 0.2% in July. In the last year,
analysts have been fairly accurate in their estimate for the core PCE price
index, having been on target six times. They have underestimated core prices
four times, with an average underestimate of 0.1pp, and overestimated it only
twice, with an average overestimate of 0.1pp. This suggests that analysts are
likely to be on target for July's core PCE and also that if they do miss, it
will be by a small margin.
     --ENERGY MAY CONTINUE TO DRAG
     The Consumer Price Index for energy, which is a very strong correlate of
the PCE Price Index for energy, posted a 0.5% decline in July, indicating that
energy should be a drag on headline PCE prices. Although the CPI for energy is a
very strong indicator for the PCE Price Index for energy, the latter tends to be
slightly more volatile, so the anticipated decline may be greater in magnitude
than that of the CPI for energy. It should be noted that although the PCE Price
Index for energy will be coming off of subsequent gains in April and May, those
gains followed a steep 2.8% decline in March that the index number has not
recovered from yet. Despite this, the index is likely to increase year over
year.
     --CPI POINTS TO INCREASED CORE PCE PRICES
     Data released earlier in August suggest core PCE prices may have picked up
in July from a soft 0.1% June increase. The core CPI measure for July posted a
0.2% gain, which is expected to translate into a 0.2% rise in core PCE prices.
This would push the year over year rate back up to 2%, in line with the Fed's
inflation target. It should be noted, however, that core CPI and core PCE prices
have not been as tightly correlated in recent months as they have been
historically.
     --RETAIL SALES SUGGEST STRONG SPENDING 
     In July, retail sales increased 0.5%, coming in well above analysts'
expectations. This increase in consumption was driven by strength in the core
retail categories, which directly flow into PCE. The strength of these core
categories significantly offset the decline in July unit auto sales. As a
result, analysts are anticipating July personal spending to show a 0.4%
increase, continuing the positive trend in consumption.
     --PERSONAL INCOME UP
     Finally, data released earlier this month in the July payrolls report
suggest an increase in personal income for the month of July. Average hourly
earnings were up 0.3%, a faster pace of growth than the 0.1% gain in the
previous month. Additionally, nonfarm payrolls rose by 157,000 in July, a
smaller gain than in recent months, but still solidly positive. However, average
weekly hours worked declined to 34.5 hours from 34.6 hours in June, providing
some offset.
--MNI Washington Bureau; +1 202-372-2121; email: shikha.dave@marketnews.com
--MNI Washington Bureau; +1 (973) 494-2611; email: harrison.clarke@marketnews.com

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
}); window.REBELMOUSE_ACTIVE_TASKS_QUEUE.push(function(){ window.dataLayer.push({ 'event' : 'logedout', 'loggedOut' : 'loggedOut' }); });