Back and forth

The ebb and flow of economic data continued last week, as markets oscillated, not helped by looming month- and quarter-end positioning. 

Inflation seems to be behaving better and moving closer to the Federal Reserve’s target. The closely watched personal consumption expenditure (PCE) measure of inflation was unchanged in May and fell from 2.7% to 2.6% over the last 12 months. Underlying core measures, which strip out volatile elements such as oil and food prices, also improved, likely pleasing the Federal Reserve. Personal income rose 0.5% in May, on a 0.7% gain in wages and salaries, while spending rose only 0.2%. This led to a rise in disposable income and an increase in the savings rate, from 3.7% to 3.9%. 

Reflecting these gains, the final University of Michigan consumer sentiment index rose from its mid-month tally in both its current and its expectations components. Probably more important were consumers’ lower expectations for inflation, 3.0% in both the one-year and the longer-term, down from 3.3% and 3.1%, respectively. Admittedly small, these are still gains that help to lay the groundwork for an eventual Fed rate cut.