Fed's Preferred Measure of Underlying Inflation Slows

I have a tie on and I don't know what that means but it does mean the consumers income comes in higher than expected, up half a percent compared with the 3/10 rise in the month of April. Personal spending 2/10 which is a little bit lower than the forecast but same as last month. And then the numbers everybody cares about. PCE price index flat on the month as forecast which means the price index goes to 2.6% from 2.7%. Core is up just a 10th as forecast and core PCE 2.6% on a year over year basis. Now what this tells you is that economists are getting very good at forecasting PCE and the Fed can continue to look forward to lowering rates without giving us a time frame to do so. We've now got jobless claims behind us, continuing claims behind us going into payrolls next Friday. Have we got a decent picture of what happened in the survey week and how this might come at the other side for payrolls next Friday? Yes, but you can't really use jobless claims the same way you can use the CPI for PCE. It suggests. The jobless claims side suggests that there's not been a lot of change in the overall labor market. And so if you think that we're still adding workers at a reasonably strong pace, then you can go ahead and extrapolate that out. Now. One of the things that we end up doing is taking the ISM hiring numbers, hiring plans numbers, to a certain extent, ADP. We won't get into that lease, but you take all these other indicators and you try to plug them in and and come up with something. And right now it's early, but basically economists think that we're going to see something in the 180's range, which is what they forecast last time. And then we got an upside surprise. How long has it been a muddle? I mean, we've been in a muddle for a while where people basically are picking their own narrative. And you can get mad at people and say that there's just two net things, which is inflation's coming down and unemployment's ticking up, But it feels a bit like a muddle. How long has it been now? Oh, gosh, about two years and coming, coming out of the pandemic. And Tom Barkin had a speech this morning, the Richmond Fed president, asking the question of why did everything go wrong, All the models go wrong. And there's a whole lot of reasons why that they can look back on. But they got it wrong. Everybody got it wrong. I guess I'm looking at this and I'm saying we're still in a muddle. And yet, if you were just going to draw one conclusion from this data that is less predicted than, say, the PC, which you say is incredibly predictable. You look at personal income outstripping personal spending. And this is an inflection point where you're starting to see that really shift after people used up some of their pandemic savings, at least according to the San Francisco Fed. And some data they put out. Is that significant that personal finances are actually getting better at this point. And I'll give you a reason why here. This is a a surprising number. And people don't forecast this. Wages and salaries were up 7/10 during the month of May, after 2/10 in April. We know from economic history, to the extent it's valid after the pandemic, people tend to spend what they make. So even though the pandemic savings has gone away, people are feeling if their paychecks are going up, they're feeling like they can spend money. And that's what they appear to be doing. We don't know if this is the 7/10 rises in general or sort of an outlier because we have seen wages trending down. But in this case, it's a very strong number that would suggest people can keep spending.