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November PCE: A Bit of Relief After the Fed Surprise

Published on December 20, 2024

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Peter Williams

November PCE: A Bit of Relief After the Fed Surprise

The softer than expected core PCE print (+11bps) will come as a relief to markets after the violent post-Fed meeting moves across asset classes.
The Fed’s updated 2.5% core PCE forecast likely contains some modest tariff assumptions on the part of many participants, with upside risks still present, but under modest tariff scenarios that forecast seems to me to have much closer to symmetric risks around it than I expected it would have going into the meeting.
Core services ex housing grew just below 2% m/m saar, well below its recent pace. Some of this was due to soft noisy non-market price impacts but even stripping those out it was a notably more sanguine print (those non-market prices had been tilting the topline in a hawkish direction recently).
The big near-term questions on inflation now are: how large will any excess seasonality in Q1 be (largely reflecting lag inflation catchup more than standard seasonal adjustment issues), how noisy will housing disinflation be after the much softer November numbers, are preemptive tariff-related price hikes and demand shifts pulling some of the likely price shocks, and will rapid productivity growth allow high nominal gains to be consistent with continued gradual disinflation?
While personal income missed on the screen that should be seen largely as noise. Aggregate wages and salaries growth was overly 7% m/m saar and earned income (compensation of employees + proprietors income) has grown at a roughly 6% saar pace over the past few months. These paces are probably too hot to be sustained and hotter than what other data seem to suggest and the m/m paths have been noisy. Even taken with a grain of salt, they suggest that there is little reason to suspect the consumer is likely to rollover in the near future barring a sudden and unexpected deterioration in the labor market.
While the noisy m/m personal spending data was a bit softer than expected, underlying PCE trends continue to suggest above long-run pace of growth around 3% and a quite health consumer given the consistent worries which have dogged the sector for years.

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