LIVE MARKETS-Thursday data parade: PCE, jobless claims, planned layoffs, et al

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THURSDAY DATA PARADE: PCE, JOBLESS CLAIMS, PLANNED LAYOFFS, ET AL

The day after the Federal Reserve's non-unanimous decision to stand pat on interest rates, a cavalcade of economic indicators appears to suggest not moving was the right move.

The most highly anticipated economic release this week, the Commerce Department's wide-ranging June Personal Consumption Expenditures (PCE) report USPCE=ECI offered a few minor surprises, most of them downbeat.

The PCE price index, Powell & Co's pet inflation yardstick, showed inflation gathering some heat.

Headline and core (ex. food and energy) prices both rose by 0.3% last month, hitting the consensus nail on the head. Both marked a slight acceleration from May's 0.2% increases.

But prices rose 2.6% year-over-year, and the core figure posted an annual gain of 2.8%. Both were 10 basis points hotter than expected.

But stripping away volatile food and energy prices, core PCE rose on monthly and annual bases by 0.2% and 2.7%, respectively. Both numbers were 0.1 percentage points hotter than expected.

Taken together, they appear to justify the Fed's holding pattern as prices, increasingly waylaid by tariffs, struggle to bridge that troublesome last mile to the Fed's average 2% inflation target.

"The Fed is unlikely to welcome the inflation dynamics currently taking hold," writes Olu Sonola, head of economic research at Fitch Ratings. "Rather than converging toward target, inflation is now clearly diverging from it."

"This trajectory is likely to complicate current expectations for a rate cut in September or October," Sonola adds.

Elsewhere in the report, personal income rose by 0.3%, stronger than the 0.2% analysts expected and marking a partial bounce-back from May's 0.4% decrease.

Consumer spending, the tent pole of the U.S. economy, increased by 0.3%, weaker than the 0.4% gain economists predicted. And even then, the increase reflects price increases, particularly with respect to gasoline.

"Consumer spending rose decently in June, but that mostly just kept spending in line with price increases," says Bill Adams, chief economist at Comerica Bank. "After a larger decline in May, consumer spending in June was below April’s level."

Drilling down, consumers continued to rein in their expenditures on durable goods, which dipped 0.5%, while spending on non-durables and services increased by 0.4% and 0.1%, respectively.

Disposable income was unchanged, which helped hold the saving rate - or the unspent portion of disposable income - at 4.5%.

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

Last week, 218,000 U.S. workers joined the queue outside the unemployment office USJOB=ECI, or 1,000 more than the previous week and 2.7% shy of consensus.

The underlying trend, as expressed by the four-week moving average of initial claims, now has a slight downward bias, suggesting that layoffs are on the wane.

But don't tell that to Challenger, Gray & Christmas (CGC). The executive outplacement firm's planned layoffs report USCHAL=ECI showed that in July, corporate America announced it would lay off 62,075 workers, or a 29.3% increase from June and 140% more than a year ago.

From January through July, 806,383 job cuts have been announced. That's 75% more than the 460,530 announced in the first five months of last year.

So far this year, the government - largely as a result of billionaire Elon Musk's DOGE efforts - has cut 292,294 jobs. That's 36.2% of total year-to-date layoffs.

"We are seeing the Federal budget cuts implemented by DOGE impact non-profits and healthcare in addition to the government," says Andrew Challenger, labor expert at CGC. "AI was cited for over 10,000 cuts last month, and tariff concerns have impacted nearly 6,000 jobs this year."

Ongoing jobless claims USJOBN=ECI, reported on a one-week lag, essentially held firm at 1.946 million, or 9,000 fewer than analysts expected. The number remains elevated and supports recent consumer survey data suggesting laid off workers are finding it increasingly difficult to find a replacement gig.

"Continued claims are still elevated, signaling unemployed workers are finding it difficult to find new jobs, but are showing signs of leveling off," says Nancy Vanden Houten, lead economist at Oxford Economics.

Separately, the Labor Department released its employment cost index USEMPC=ECI, which rose by 0.9% in the second quarter on a quarterly annualized basis, hotter than the 0.8% analysts anticipated and a repeat of the Q1 growth rate.

All of which is prologue to the Labor Department's July employment report due on Friday, which is expected to show the U.S. economy added 110,000 jobs this month, with the unemployment rate creeping up to 4.2% from 4.1%.

Finally, Midwest factory activity has continued to contract in July, but at a shallower-than-expected pace.

MNI Indicators' Chicago purchasing managers' index (PMI) USCPMI=ECI delivered a reading of 47.1, a 6.7-point improvement over June and not quite as gloomy as the 42.0 analysts anticipated.

Still, a PMI reading south of 50 indicates monthly contraction.

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

Analysts see that report improving to a barely-contractive but much healthier 49.5.

(Stephen Culp)

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