MNI DATA PREVIEW: US June Core PCE Prices Seen Up 0.2%

By Kevin Kastner, Brooke Migdon, and Alexandra Kelley

     WASHINGTON (MNI) - The personal income and consumption report for June, due

to be released on Tuesday, is expected to show solid income growth due to the

strong employment data, while spending is expected to post a smaller gain and

core prices are expected to remain on trend. Annual revisions will be included

with the data.

     The median forecast in an MNI survey see personal income rising by 0.4%

after a 0.5% gain in May, while nominal PCE is expected to rise by 0.3%. The

core PCE price index is expected to post a 0.2% gain that should lift the

year/year rate to 1.7%. 

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

     - The expected 0.2% gain in core PCE prices follows a similar gain in May

and would lift the year/year rate to 1.7%. Even so, it would keep the rate well

below the 2% FOMC target and would continue to bolster the case for rate cuts.

Core prices were up 1.8% in the second quarter GDP report released on Friday, an

acceleration from the 1.1% gain reported in the first quarter, but the Y/Y rate

for the quarter slipped to 1.5%, the slowest since the third quarter of 2017.

     - The health care measures in the PPI and CPI reports, as well as the PCE

proxies released with the PPI report, were positive factors for the June PCE

price measures. Still, the core PCE price index rarely produce a significant

surprise, so the 0.2% forecasted gain is a safe bet.  

     - Private payrolls rose by 224,000 in June, much larger than the 75,000

increase in May. However, hourly earnings rose by only 0.2% in June after a

stronger 0.3% gain in May and the workweek was unchanged. As a result, the wages

and salaries portion of personal income is likely to rise in line with the

recent trend, but not beyond it.

     - Stock Prices To Boost Income Personal income growth in May was also

supported by solid gains in the other income components, particularly return on

assets. The record level of stock prices is likely to continue this trend into

June.

     - Retail sales growth, by all measures, was stronger in June than in May, a

positive for nominal PCE growth to post another trend increase in June. Analysts

expect growth to slow to a 0.3% pace after larger readings in April and May, but

the retail sales data present an upside risk.

     - The combination of a steady nominal PCE growth pace and relatively modest

inflation growth suggests a solid month for real PCE. The GDP data released on

Friday showed that real PCE accelerated sharply in the second quarter. The

current monthly data show most of that strength was in April, with a slower gain

in May, so the quarterly pace suggest that a solid June reading finished off the

quarter. 

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

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

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

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