LIVE MARKETS-Data soup du jour: GDP, PCE, jobless claims

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DATA SOUP DU JOUR: GDP, PCE, JOBLESS CLAIMS

Investors began their Thursday being confronted by a pile of economic data, which showed weaker-than-anticipated economic growth, an unexpected drop in personal income, and a jump in jobless claims.

But the inflation aspect hit the bull's-eye.

The Commerce Department's February Personal Consumption Expenditures (PCE) price index, USPCE=EC Powell & Co's pet inflation yardstick, stuck the consensus landing.

As expected, prices rose by 0.4% in the second month of 2026 - a slight acceleration from January's 0.3% - and held firm at 2.8% year-over-year.

Stripping away volatile food and energy prices, core PCE printed as expected, rising on monthly and annual bases by 0.4% and 3.0%, respectively.

While this report predates the war on Iran - and the resulting spike in energy prices - it remains well to the north of the Federal Reserve's average 2% inflation target.

And is likely to drift higher as the war's effects begin to be felt.

"Consumer inflation was firming even prior to the outbreak of war in the Middle East, and it is primed to jump sharply higher in March,” writes Kathy Bostjancic, chief economist at Nationwide. “Even if a long-lasting deal to end the war is reached and the Strait of Hormuz is fully re-opened, it would take months for oil, gasoline, diesel and other commodity supplies to snap back to pre-war levels and thus for prices to settle back to pre-conflict levels."

Surprises were to be found elsewhere in the report.

Personal income unexpectedly fell by 0.1%, defying the 0.3% increase economists predicted.

But consumer spending growth repeated January's 0.4% print, in line with estimates.

But consumer spending is "unlikely to rise at a strong pace in coming months as the hit to real incomes from higher gasoline prices builds," says Michael Pearce, chief U.S. economist at Oxford Economics.

Drilling down, expenditures on durable goods jumped 0.9%, but outlays on non-durable goods fell by 0.2%. Spending on services increased by 0.1%.

Disposable income dipped 0.1%, which dragged the saving rate - or the unspent portion of disposable income - down to 4.0%.

While the saving rate is often viewed as a barometer of consumer anxiety, this report has the whiff of stagflation about it; falling income and rising expenditures - due in part to hot inflation - result in fewer pennies in the piggy bank.

The Commerce Department also took its third and final stab at fourth-quarter GDP, which showed the U.S. economy expanded at a listless 0.5% at a quarterly annualized rate, weaker than expected and 0.2 percentage points lower than the previously stated 0.7%.

"Given the slower GDP and job growth, along with concerns about inflation re-accelerating, the Fed will have no choice but to sit on the sidelines for an extended period of time," says Chris Zaccarelli, chief investment officer at Northlight Asset Management.

Under the hood, business investment was revised slightly higher, 2.3% from 2.2%, with expenditures on structures falling 6.5%, not as dire as the previously reported 7.1% drop. Investment in residential structures dropped 1.7%, logging its sixth decline over the last seven quarters. Trade remained a drag, with exports and imports falling by 3.2% and 1.0%, respectively.

The consumer expenditures element, which accounts for about 70% of the U.S. economy, was dialed back to 1.9% growth from 2.0%. Spending on durable goods edged up 0.1% as consumers held off on big-ticket purchases amid looming economic uncertainties, and outlays on services were unchanged at 2.7%.

Still, consumer spending contributed 1.3 percentage points to the upside. Without it, GDP would have fallen by 0.9%.

Switching to the labor market, 219,000 U.S. workers joined the queue outside the unemployment office USJOB=ECI last week, 7.9% more than the week prior and 9,000 north of consensus.

Ironing out weekly volatility, the four-week moving average of initial claims continues to drift sideways, shuffling along the lower end of the range associated with healthy labor market churn.

Despite the weekly jump, cumulative labor market data still suggest the U.S. economy is in a low-hire/low-fire phase amid ongoing geopolitical and economic uncertainties.

"We still see low numbers of those filing for unemployment benefits," says Jeffrey Roach, chief economist at LPL Financial. "The labor market is holding steady amid a slowdown which gives the Fed some time to wait and manage to their dual mandate."

Ongoing jobless claims USJOBN=ECI, which are reported on a one-week lag, unexpectedly dropped 2.1% to 1.794 million, or 43,000 fewer than analysts expected.

That's the lowest continuing claims reading since May 2024.

It's an open question whether laid-off workers are starting to find new gigs, or if unemployment benefits are expiring for an increasing number of jobless Americans.

(Stephen Culp)

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