LIVE MARKETS-TGIF data onslaught: PCE, UMich, Chicago PMI, advance trade

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TGIF DATA ONSLAUGHT: PCE, UMICH, CHICAGO PMI, ADVANCE TRADE

A barrage of data started investors off on the last day of this holiday-shortened week. Much of the hard data was encouraging, but the survey data showed a great deal of uncertainty and anxieties floating around.

The Commerce Department's wide-ranging Personal Consumption Expenditures (PCE) report USPCE=ECI was the star of the show, the market's most highly anticipated economic release this week.

The PCE price index, Powell & Co's pet inflation yardstick, is a good place to start.

Prices rose by 0.1% last month, as expected and by 2.1% year-over-year, a tad cooler than the 2.2% consensus.

Stripping away volatile food and energy prices, core PCE landed exactly as economists predicted, rising on a monthly and annual bases by 0.1% and 2.5%, respectively, while rising by 0.4% from the previous month and 2.8% from February 2024.

"Inflation is continuing to soften, which is encouraging news, especially as the economy prepares for higher prices due to tariffs," writes Clark Bellin, chief investment officer at Bellwether Wealth. "It will take time for tariffs to work their way through the economy, so we are particularly paying close attention to the inflation readings in 2-3 months from now to better understand how tariffs are affecting consumer prices."

It was the fourth and final major inflation measure for April, which has shown price growth continues to bridge that last, troublesome mile down to the Fed's average 2% inflation target.

Elsewhere in the report, personal income increased by 0.8%, barreling past the 0.3% expected and accelerating from the prior month's upwardly adjusted 0.7% growth.

Consumer spending, on the other hand, lost some momentum, rising 0.2%. That's in line with estimates and an abrupt slowdown from March's 0.7% print.

Even so, the increase fell short of the 0.5% growth analysts expected.

"Personal income was much stronger than we expected, but spending was in line with expectations," Peter Cardillo, chief market economist at Spartan Capital Securities tells Reuters. "And that just simply means there's a lot of cautiousness out there on the part of consumers."

Digging deeper, consumers increased their spending on services and nondurables, but pulled back their expenditures on durable goods by 0.8%, suggesting a reticence to buy big ticket items in the face of looming economic uncertainty.

Disposable income increased by 0.7%, which helped bump the saving rate - or the unspent portion of disposable income - to 4.9% from 4.3%. That was the highest it's been since May 2024.

The saving rate is often viewed as a barometer of consumer anxiety.

While we're on the subject, the mood of the nervous American consumer, who shoulders the burden of about 70% of the U.S. economy, is less bleak this month than originally thought.

The University of Michigan's (UMich) second and final take on May consumer sentiment USUMSF=ECI was upwardly adjusted to 52.2 from its originally stated 50.8.

Even so, the final number is unchanged from April, which marked the lowest the index has been since July 2022.

Survey participants' assessment of present conditions was revised 2.3% higher, but remained down 1.5% from the previous month. Near-term expectations were bumped 3.0% higher, and improved by 1.3% over April's final reading.

"Sentiment had ebbed at the preliminary reading for May but turned a corner in the latter half of the month following the temporary pause on some tariffs on China goods," writes Joanne Hsu, UMich's director of Consumer Surveys. Expected business conditions improved after mid-month, likely a consequence of the trade policy announcement."

"Overall, consumers see the outlook for the economy as no worse than last month, but they remained quite worried about the future," Hsu adds.

The closely-watched inflation expectations element of the report showed marked improvement.

Respondents now expect price growth of 6.6% a year from now, cooler than the originally stated 7.3%, but well over double today's core PCE price index reading.

Longer-term, consumers' five-year inflation expectations shaved off 40 basis points to land at 4.2%.

Are consumers' inflation expectations accurate predictors of hard inflation data?

They are not.

But it's the psychological effect that high inflation expectations have on consumer behavior that concerns folks like Federal Reserve Chair Jerome Powell, as it has the potential to result in a self-fulfilling prophecy.

In a separate report, midwest factory activity contracted at a faster-than-expected pace this month.

MNI Indicators' Chicago purchasing managers' index (PMI) USCPMI=ECI shed 4.1 points to print at 40.5, well short of the 45.0 estimated by economists.

A PMI reading below 50 indicates monthly contraction.

On Monday, the Institute for Supply Management (ISM) is due to unveil its broader, nationwide PMI reading for May, which is seen inching closer to that magic barrier of 50, but remaining just shy of expansion at 49.3.

And finally, the Commerce Department released its advance take on goods trade balance USGBAL=ECI and wholesale inventories USAWIN=ECI for April.

The gap between the value of goods imported to the United States and those exported abroad narrowed considerably, shrinking by 46.0% to $87.63 billion last month. That's the narrowest advance take since September 2023.

"Import levels plummeted in April as the impact of high tariffs and the end of three months of front-loading came an abrupt halt," says Matthew Martin, senior U.S. economist at Oxford Economics. "With country specific tariffs changing quickly and the legality of tariffs in question, uncertainty will remain high. This will make it hard for businesses to know when and what products to bring into the country and difficult to chart a path forward for trade."

Net trade was the biggest drag on first-quarter GDP, as companies rushed to make purchases ahead of Trump's expected tariff hikes.

The value of goods stacked in the warehouses of U.S. wholesalers was unchanged in April.

(Stephen Culp)

EARLIER ON LIVE MARKETS:

WALL STREET INDEXES DIP ON TRADE CONCERNS CLICK HERE

U.S. STOCK FUTURES PARE LOSSES SLIGHTLY AFTER PCE CLICK HERE

STOXX: BEST MAY IN 35 YEARS BUT SUMMER LOOMS CLICK HERE

MORE DOLLAR DEPRECIATION WOULD WEIGH ON EUROPEAN BANK EARNINGS - JPM CLICK HERE

PATH OF LEAST RESISTANCE IS TO THE UPSIDE CLICK HERE

STOXX TICKS HIGHER, CHEMICALS AND REAL ESTATE PROVIDE LIFT CLICK HERE

EUROPE BEFORE THE BELL: FUTURES FLAT BUT STOXX HEADS FOR MONTHLY GAIN CLICK HERE

COURTROOM TWISTS ADD TO TARIFF RISKS CLICK HERE