The recent data released by the Bureau of Economic Analysis highlights a notable deceleration in consumer spending growth in the United States for the month of June. The increase in personal consumption expenditures (PCE) moderated to 0.3%, down from a previously revised figure of 0.4% in May. This latest result aligns with the consensus estimate as polled by Bloomberg.
In terms of goods spending, June saw a minimal rise of just 0.1%, a downturn compared to the 0.5% increase witnessed the previous month, primarily due to a contraction in durable goods. Importantly, the spending on services remained flat month-over-month, marking a growth rate of 0.4%. Senior Economist at BMO Capital Markets, Sal Guatieri, commented on the situation, stating, "Consumers aren't spending the way they used to, but are still providing ongoing support to the expansion." This observation reflects a shift in consumer behavior, where the pace of expenditure has changed, yet it continues to contribute to economic growth. In another key economic indicator, the annual headline PCE price index observed a slight decline in its growth rate, settling at a 2.5% increase, down from 2.6% in May.
This figure, however, exceeded market expectations, which stood at 2.4%. The core PCE measure, a critical gauge that excludes the often-volatile prices of food and energy, remained stable with a 2.6% increase—slightly above the analyst consensus of 2.5%. On a month-on-month basis, inflation reported a 0.1% rise in June following a neutral reading in May, while the core inflation rate slightly accelerated to 0.2%, up from the previous 0.1%.
Notably, both metrics have been consistent with prevailing market expectations. Economist Shernette McLeod from TD Economics provided insight into the current inflation climate, noting, "On the inflation front, despite a slight uptick in the monthly core figure, the recent cooling trend is likely to be interpreted favorably by the Federal Reserve." She further articulated that this trend is encouraging and contributes positively to the recent favorable consumer price index readings. As the economic landscape evolves, there is growing speculation regarding the Federal Open Market Committee's impending decisions.
Markets are widely anticipating that the FOMC will maintain the current interest rates during their upcoming meeting. Meanwhile, there are expectations of a potential 25-basis-point rate cut in September, as indicated by the CME FedWatch tool. This speculation aligns with the notion that the US economy experienced a stronger growth rate than initially projected during the second quarter, as consumer spending has shown resilience despite a cooling in inflation rates, based on the preliminary estimates released by the BEA. Sal Guatieri reiterated the sentiment that with a soft landing on the horizon and inflation trending downward, the FOMC is likely to meet the widespread anticipation of a rate cut in September.
As the economic momentum builds, the implications for monetary policy are significant, suggesting avenues for consumers and investors alike to consider in their financial strategies..