Source: Economics Group of Wells Fargo Bank, N.A.
Summary
If Fed policymakers were making wishes, they’d want services spending to cool, goods spending to pick up and for all of this to happen with inflation coming down and a labor market strong enough to sustain income growth. Today’s personal income and spending report largely granted those wishes.
Is Your House on Fire, Clark?
The defining economic news this week was a more hawkish turn from policymakers at the Federal Reserve, and today’s personal income and spending report adds some new dimensions to the Fed’s progress. The defining challenge this year for policymakers has been to put out the inflation fire without causing water damage to the labor market, and today’s data suggest some welcome progress in that endeavor.
In a sign of progress on inflation, the PCE deflator, the Fed’s preferred inflation gauge, came in a bit shy, up just 0.1% rather than the 0.2% that had been expected. The upshot is that real spending came in bang-on the 0.3% that had been expected.
The composition of spending is what is most interesting to us.