Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
The stock market fails to rally each day. What’s next for stocks - 14th Dec 18
How Low Could the S&P 500 Go? - 14th Dec 18
An Industrial to Stock Trade: Is Boeing a BUY Here? - 14th Dec 18
Will the Arrest of Huawei Executive Derail Trade War Truce? - 14th Dec 18
Trump vs the Fed: Who Wins? - 13th Dec 18
Expect Gold & Silver to Pullback Before the Next Move Higher - 13th Dec 18
Dollar Index Trends, USDJPY Setting Up - 13th Dec 18
While The Stocks Bulls Fiddle With The 'Fundamentals,' Rome Burns - 13th Dec 18
The Historic Role of Silver - 13th Dec 18
Natural Gas Price Setup for a Big Move Lower - 13th Dec 18
How to Get 20% Off Morrisons Weekly Supermarket Shopping - 13th Dec 18
Gold Price Analysis: Closer To A Significant Monetary Event - 13th Dec 18
Where is the Stock Market Santa Claus Rally? - 12th Dec 18
Politics and Economics in Times of Crisis - 12th Dec 18
Owning Precious Metals in an IRA - 12th Dec 18
Ways to Improve the Value of Your Home - 12th Dec 18
Theresa May No Confidence Vote, Next Tory Leader Betting Market Analysis and Forecasts - 12th Dec 18
Gold & Global Financial Crisis Redux - 12th Dec 18
Wow Your Neighbours With the Best Christmas Projector Lights for Holidays 2018! - 12th Dec 18
Stock Market Topping Formation as Risks Rise Around the World - 11th Dec 18
The Amazing Story of Gold to Gold Stocks Ratios - 11th Dec 18
Stock Market Medium term Bullish, But Long Term Risk:Reward is Bearish - 11th Dec 18
Is a Deleveraging Event about to Unfold in the Stock Market? - 11th Dec 18
Making Money through Property Investment - 11th Dec 18
Brexit: What Will it Mean for Exchange Rates? - 11th Dec 18
United States Facing Climate Change Severe Water Stress - 10th Dec 18
Waiting for Gold Price to Erupt - 10th Dec 18
Stock Market Key Support Being Re-Tested - 10th Dec 18
May BrExit Deal Tory MP Votes Forecast, Betting Market Analysis - 10th Dec 18
Listen to What Gold is Telling You - 10th Dec 18
The Stock Market’s Long Term Outlook is Changing - 10th Dec 18
Palladium Shortages Expose Broken Futures Markets for Precious Metals - 9th Dec 18
Is an Inverted Yield Curve Bullish for Gold? - 9th Dec 18
Rising US Home Prices and Falling Sales - 8th Dec 18
Choosing Who the Autonomous Car Should Kill - 8th Dec 18
Stocks Selloff Boosting Gold - 8th Dec 18

Market Oracle FREE Newsletter

How You Could Make £2,850 Per Month

February Personal Consumption Expenditures (PCE) Increases Inflation Risks

Economics / Inflation Mar 30, 2007 - 10:52 PM GMT

By: Paul_L_Kasriel

Economics

In real terms, February Personal Consumption Expenditures (PCE) increased by 0.2% after January's 0.3% rise. It was a 0.5% increase in real service sector spending that yielded a positive change on overall real PCE. Real durable goods expenditures fell 0.1% and real nondurable goods expenditures fell 0.4%.

Real PCE services increased 0.5%, fueled by a 9.5% rise in expenditures for household utilities (electricity and gas). As you may recall, February was considerably colder than usual. In fact, in terms of heating degree days, February 2007 was the coldest February since that of 1979. March warmed up.


The question is whether households spent their March savings on utilities at the malls or saved these savings. Given that their saving rate remains at Great Depression level lows - that is, they are running a deficit - and given all the angst about the value of their main retirement nest egg, their homes, I have a feeling they did not hit the malls with vigor in March. The January-February average of real PCE suggests that first-quarter average real PCE is likely to come in at an annualized pace of about 3-1/2% -- down from the fourth quarter's annualized growth of 4.2%. Quarterly-averaging arithmetic and economic theory point to a further deceleration in real PCE growth in the second quarter.

The February durable goods orders data reported earlier this week suggest that real expenditures on business equipment and software will contract for the second quarter in a row. Putting it all together, it looks as though first-quarter real GDP growth will be below 2-1/2%. The FOMC can live with that, but given the slower trajectory of real PCE growth, the ongoing turmoil in the residential real estate market and that "the magnitude of the slowdown [in business capital expenditures] has been somewhat greater than would be expected given the normal evolution of the business cycle," the Fed must be getting more nervous about the prospects for a recession later this year.

The FOMC might be nervous about the higher probabilities of a recession, but it has to keep up its guard about the prospects of an upside breakout in consumer inflation. The core PCE price index increased 0.3% month-to-month in February and 2.40% year-over-year.

Most of the moderation in year-over-year core PCE inflation has been erased from its cycle high of 2.44% set back in August 2006. Although increases in the rent of shelter - explicit and imputed - continue to raise the roof on core inflation, apparel and medical care prices are accelerating.

The faster pace of apparel prices could be due to the decline in the dollar. Rent increases are likely to moderate with condo-flippers desperate to bring in a little monthly income to help pay the mortgage, taxes, insurance and condo fees on their empty investments. And inflation is a lagging indicator. The FOMC surely is aware of all this but because it still does not have a lot of Street cred, it has to continue to threaten to commence again in raising the fed funds rate even though it is loathe to do so.

By Paul Kasriel
The Northern Trust Company
Economic Research Department - Daily Global Commentary

Copyright © 2007 Paul Kasriel
Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules