LIVE MARKETS-Get what you pay for: PCE, employment costs, Chicago PMI

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

GET WHAT YOU PAY FOR: PCE, EMPLOYMENT COSTS, CHICAGO PMI

Investors headed into the weekend and toward the second month of 2025 on Friday with good news for nearly everyone except Midwest manufacturers.

The Commerce Department politely delivered a Personal Consumption Expenditures (PCE) report USPCE=ECI that aligned with analyst expectations, with one happy exception.

Starting with the price index - the Fed's pet inflation yardstick - headline and core (which excludes food and energy) increased as predicted, by 0.3% and 0.2%, respectively.

Both were warmer than the November readings.

Year-on-year, the headline print added 0.2 percentage points to 2.6%, while the core measure repeated the prior month's 2.8% print. Both readings hit the consensus nail on the head, and remain within 1 ppt of Powell & Co's 2% inflation target.

Even so, "the data shows that inflation remained elevated in December to end 2024, making it somewhat ironic that the Federal Reserve cut interest rates during the same month," writes Clark Bellin, president of Bellwether Wealth. "As the Federal Reserve suggested on Wednesday, more time is needed to allow inflation to settle down before the Fed can cut rates again."

Elsewhere in the report, personal income growth edged up to 0.4% from 0.3% as predicted.

But the surprise came from consumer spending, which increased by a robust 0.7% on the tail of November's upwardly revised 0.6% increase.

The saving rate, or the unspent share of disposable income, slid to 3.8%, the lowest its been since December 2022.

"The very strong personal income spending data continues to suggest that the consumer remains resilient. At the same time, you do have inflationary pressures continuing to fade," said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities.

"It really underscores that the Fed can keep rates on hold ... we actually think the Fed can keep rates on hold for even longer, all the way through the first half of the year."

Separately, the Labor Department released its employment cost index USEMPC=ECI, which rose by 0.9% in the fourth quarter, as anticipated, up from 0.8% in Q3, the increase driven by faster wage growth.

"Real consumer spending provided a big boost to Q4 GDP growth, though some of the strength was likely exacerbated by replacement demand for durable goods following the hurricanes and some front-loading of spending ahead of tariffs," writes Ryan Sweet, chief U.S. economist at Oxford Economics.

Finally, Midwest factory activity continues to contract at a fairly dire pace this month.

MNI Indicators' Chicago purchasing managers' index (PMI) USCPMI=ECI landed at 39.5, a 2.6-point improvement over December but a hair shy of the 40.0 consensus.

A PMI reading south of 50 indicates monthly contraction, and below 43 is a level commonly associated with recession. So while the broader economy certainly isn't behaving as if it is in an economic downturn, this report sure is.

Market participants will get a clearer picture on the state of U.S. manufacturing on Monday, when the Institute for Supply Management (ISM) releases its nationwide PMI.

Analysts see that report printing at a still-contractive but much healthier 49.6.

(Stephen Culp, Karen Brettell)

FOR FRIDAY'S EARLIER LIVE MARKETS POSTS:

TARIFF WORRIES WHERE? NOT AMONG LATIN AMERICAN STOCKS - CLICK HERE

US STOCKS HIGHER AFTER APPLE EARNINGS, INFLATION DATA - CLICK HERE

S&P 500 FUTURES REMAIN PLANTED AFTER PCE - CLICK HERE

LOOKING THOUGH THE NOISE - CLICK HERE

CENTRAL BANKS SO-2024, NOW IT'S TARIFFS THAT MATTER FOR FX - CLICK HERE

U.S. STOCKS BENEFIT FROM JANUARY FEEDING FRENZY - CLICK HERE

EURO ZONE BLUE-CHIPS SET FOR BEST MONTH IN TWO YEARS - CLICK HERE

EUROPE BEFORE THE BELL: STOCKS SET TO CLOSE OUT STRONG JANUARY IN GREEN - CLICK HERE

MARKETS BIDE TIME AS ZERO HOUR NEARS ON TARIFFS - CLICK HERE