LIVE MARKETS-A data carol: September PCE, December UMich

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A DATA CAROL: SEPTEMBER PCE, DECEMBER UMICH

With Christmas less than three weeks away, investors on Friday were visited by the ghosts of PCE past, and UMich present, setting themselves up for a rendezvous with the ghost of Fed yet to come.

In what was once an anxiously awaited economic release, in the pre-shutdown days when the data was still current, Commerce Department's wide-ranging Personal Consumption Expenditures (PCE) report USPCE=ECI offered few surprises.

Starting with the PCE price index, Powell & Co's pet inflation yardstick showed price growth stuck the consensus landing in September.

As expected, prices rose by 0.3% last month, and by 2.8% year-over-year. The annual gauge was 10 basis points hotter than the previous month.

Stripping away volatile food and energy prices, core PCE rose on monthly and annual bases by 0.2% and 2.8%, respectively. The latter landed a notch below the 2.9% analysts expected.

Taken together with the other three major inflation measures - wage growth, CPI and PPI - it can be said that price growth generally got back on track, lumbered down that troublesome last mile down toward the Federal Reserve's average 2% inflation target.

Elsewhere in the report, personal income increased 0.4%, stronger than the 0.3% increase economists predicted and offering a repeat of August's reading.

Consumer spending, the tent pole of the U.S. economy, cooled down to 0.3%, a deceleration from the previous month's downwardly revised 0.5% growth.

“(The) data show real consumer spending rose at an above-trend pace in Q3, helped by powerful wealth effects boosting spending among older, richer households," says Michael Pearce, chief U.S. economist at Oxford Economics. "Though bifurcated, we expect the US consumer will deliver a decent holiday shopping season, and that spending will continue to grow at a solid pace in 2026."

Digging deeper, expenditures on durable goods dipped by 0.7%, while outlays on non-durables and services both grew 0.4%.

Disposable income weakened to 0.3%, which held the saving rate - or the unspent portion of disposable income - at 4.7%, a repeat of August's lowest reading this year.

While the saving rate is often viewed as a barometer of consumer anxiety, the slowdown in disposable income growth combined with an unchanged, historically low saving rate suggests budgets are being squeezed by rising costs, much of it likely tariff-related.

Speaking of consumer anxiety, The University of Michigan (UMich) provided a much fresher report with its initial take on December consumer sentiment USUMSP=ECI.

The report showed the general mood of the consumer has brightened (or more accurately, grew a bit less gloomy) than economists projected, rising 2.3 points to 53.3.

While survey participants' assessment of present conditions deteriorated by 0.8%, near-term expectations jumped 7.8%, breezing past expectations.

"Expectations improved, led by a 13% rise in expected personal finances, with improvements visible across age, income, education, and political affiliation," says Joanne Hsu, UMich's director of consumer surveys. "Still, December’s reading on expected personal finances is nearly 12% below the beginning of the year."

It should be noted that expectations are now brighter than the current conditions metric - a rare inversion and a good omen for the coming year.

In another less-dreary aspect was the cooling trend in the closely scrutinized inflation expectations element.

Respondents now expect price growth of 4.1% a year from now, down from November's final reading of 4.5%, but 1.3 percentage points hotter than today's core PCE price index reading.

Longer-term, consumers expect annual inflation of 3.2% five years from now, down 20 basis points from last month.

(Stephen Culp)

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