MNI DATA PREVIEW: US May Core PCE Prices Seen +0.2%

By Kevin Kastner

     WASHINGTON (MNI) - The personal income and consumption report for May will

be released on Friday and is expected to show slower income growth due to the

soft employment data, while spending and core price growth are expected to

maintain their April rates before revisions.

     The median forecast in an MNI survey see personal income rising by 0.3%

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

core PCE price index is expected to post another 0.2% gain that should keep the

year/year rate at 1.6%.

     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 April

and would leave the year/year rate at 1.6%, the slowest since January 2018. The

Federal Reserve remains concerned about slowing inflation as the year/year rate

has slipped from a high of 2.0% in December. It is possible that the upward

revisions to first quarter prices, released Thursday morning in the GDP report,

continued into the April and May data as well, lifting the index level and the

year/year change.

     - 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 May PCE

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

surprise, so the closely-watched Y/Y rate is unlikely to be altered drastically.

     - Private payrolls rose by only 90,000 in May, much softer than the 224,000

increase in April. At the same time, hourly earnings rose by 0.2% in April for a

third straight month and the workweek was unchanged. As a result, the wages and

salaries portion of personal income is likely to post below trend growth in May

and contribute to the slowdown in overall personal income growth to 0.3% from

the 0.5% gain posted in April.

     - Mixed Personal income growth in April was also supported by a strong

rebound in receipt on assets after declines in the previous three months. While

the level of this income measure is likely to rise further, the size of the

monthly gain is likely to be smaller than in April. Larger gains in proprietors'

income and retail income should only partially make-up for the softer readings

for assets income and wages, leaving personal income growth slower.

     - PCE Growth Retail sales growth, by all measures, was stronger in May than

April, but did not reach the pace set in March. Annual revisions to the retail

sales data suggest the strong possibility of upward adjustments to nominal PCE

in March and April, followed by the expected 0.3% gain in May.

     - The combination of a steady PCE growth pace and inflation growth should

allow real PCE to rise only modestly after a previously reported flat reading in

April. Assuming the upward revisions to March and April nominal PCE, real PCE

growth should remain moderately ahead of the first quarter's pace.

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

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