The BEA reports real income is down, but personal spending jumped anyway. Inflation data is mostly as expected, but much higher than the Fed would like to see.
Personal Income and Outlays, February 2024
Nothing about the BEA’s Personal Income and Outlays report for February 2024 suggests the Fed should cut interest rates at its next meeting.
- Personal income increased $66.5 billion (0.3 percent at a monthly rate) in February.
- Disposable personal income (DPI), personal income less personal current taxes, increased $50.3 billion (0.2 percent)
- Personal consumption expenditures (PCE) increased $145.5 billion (0.8 percent).
- The PCE price index increased 0.3 percent. Excluding food and energy, the PCE price index increased 0.3 percent.
- Real DPI decreased 0.1 percent in February.
- Real PCE increased 0.4 percent; goods increased 0.1 percent and services increased 0.6 percent.
The Fed wants inflation at 2.0 percent. 0.3 percent per month times 12 months won’t come close to getting there.
You can twist the analysis however you want but you cannot twist the math.
Real Income and Spending Percent Change
Nominal spending was up 0.8 percent and real spending was up 0.4 percent. This suggests PCE inflation was on the high side of the range.
Rounded to a single decimal point, the reported 0.3 PCE price index month-over-month can be in the range of 0.25 to 0.34.
The PCE price index for January was 121.906. For February, it was 122.312. That’s a monthly increase of 0.333 percent, on the high end of the range. Multiply that by 12 and you are close to 4.0 percent price inflation annually.
This does not support Fed interest rate cuts.
Apartment List Reports Rent Prices Increase for the Second Month
Yesterday, I noted Apartment List Reports Rent Prices Increase for the Second Month
Also note Case-Shiller National Home Price Index Hits New Record High
Case-Shiller updated is home price data for January this week. Here are the key charts and a discussion of why it’s hard to tell if prices are rising or falling.
The Fed wants to cut in June, and that’s what the market expects (thanks to Fed jawboning), so most likely the Fed will cut unless the data is very hot.
Like Pavlov’s dogs, the market is salivating over rate cuts.
Business is contracting in real dollars and expanding in hyper inflation dollars. The dollar isn’t worth a tinker’s damn. Minimum wage at fast food joints is $20/hour. Grocery shelf stockers earn $18/hour. Apples cost more than $1 each. Inflation is always and ever a monetary phenomenon. Corrupt governments debase the currency. No government is more corrupt than the Obama/Biden government.
Spending is up because of inflation! That’s what inflation does…we spend more for less!!
The last time Trump ran for president in 2016, Yellen significantly lowered long Treasury rates in January. GDP had fallen to 0.5 in the previous quarter, and 0.6 in 1Q16. There was plausible excuse to cut. The following quarter, GDP recovered to 2.2 percent. There was no rationale for Yellen to keep rates suppressed through November.
History may not repeat itself, but it can rhyme. In this verse, the Fed has goosed equities. The run-up in major indexes since October has rivaled the intensity during the Fed’s pandemic bailout. Liquidity has been supplied by $2T in the Fed’s overnight lending facility, with a boost from BTFP. Under BTFP, banks can borrow funds from the Fed at a rate tied to future interest-rate expectations. The reason Powell jawboned cuts.
S&P margin debt continues its spiral-up. Institutional investors suddenly found rates on options attractive under BTFP. End of March, the repo facility has been drained and BTFP ends. Major market indexes have plateaued, except for liquidity from busted shorts, and churn. Gaps-up in index prices are quickly filled. Unlike the multiple gaps, that remain from the run-up since October. The Fed continues their jawboning, and search for another scheme to reduce rates on options, to keep markets afloat until elections. Failing a solution they would lower FFR.
The Consumer Confidence Index parallels equity index prices. Their sample group is skewed to higher income households that own stocks. This is the demographic the liberal Fed wants to influence. In the month of November 2016, Yellen significantly raised long-term rates, back to their yields from December 2015. This action was ignored by MSM. If Trump is elected again, and the Fed recalls their $2T from repo lending, all gaps in the run-up will be filled, which wouldn’t go unnoticed.
Deficit Spending hits a record high.
(Since Biden took office the National Debt is up by 25%)
Inflation continues to go up.
1+1=2
Biden is buying votes with our childrens Birth Right.
This couldn’t be simpler, or more destructive.
I’d tend to agree that the current inflationary environment doesn’t lend itself to support cutting interest rates.
A lot of folks seem to think that rate cuts are inevitable for political reasons with the election coming in barely seven months now.
Whether it is or not really doesn’t matter, but as we’ve seen in the February inflation reports, the rate of inflation is indeed on the rise again.
I’m not sure if you noticed, but January’s PCE was revised higher MoM for PCE and Core PCE.
Originally reported as 0.3% and 0.4% respectively, the revisions brought the MoM increase to 0.4% and 0.5% respectively.
Core PCE was also revised from 2.8% YoY to 2.9% YoY.
PCE remained the same last month at 2.4% YoY, but as we saw in both the CPI and PPI reports, it ticked higher YoY in February to 2.5%.
Goods prices increased 0.5% MoM after declining 0.2% last month and declining for four months straight.
Nondurable goods increased 0.7% MoM after declining 0.4% in January.
Durable good prices increased 0.2% MoM matching January’s 0.2% MoM increase and that follows 7 straight months of declining prices.
All of these price increases were driven by rising energy goods and services prices which increased 2.3% MoM after also declining for four straight months.
All of those MoM increeases were the highest we’ve seen since August 2023.
Given the sustained price increases for brent, WTI and RBOB since 12/12/23, we can expect the rate of inflation to continue to tick higher for at least the next two months.
Pump prices are already higher YoY and have been for a month or so now and prices are guaranteed to keep rising.
The next round of inflation reports will be for March, but all oil and RBOB gasoline delivered to refiners during the month of March were for February futures contracts.
For the record, RBOB prices exploded higher in March and both oils continued to rise in price and at a faster rate than they did in February.
Those higher priced oil and RBOB gasoline won’t be delivered to refiners until April.
Economic 101 portends continued rising pump prices in the weeks ahead as those higher prices filter their way through the pipeline to the gas pump.
The PPI report showed that gasoline prices increased 6.8% in February and No.2 diesel fuel increased 15.9% in February.
Those price increased were based on January futures prices, so common sense would suggest we will continue to see rising prices and as everyone knows, rising oil, gas and diesel prices tend to increase the prices for everything else.
The next couple of months of inflation reports will definitely dampen enthusiasm for June rate cuts among Fed officials, but that doesn’t mean that they won’t stick to rate cuts.
On the other hand, if they do, that will almost certainly begin to push the rate of inflation even higher in the months following any rate cuts.
RE: oil, gasoline, diesel
Spring==>Summer… fuel prices ALWAYS rise in Q2/Q3.
fuel costs contribute to costs/margins across every economic category.
further, KeyBridge+Red Sea+eurasian war… the costs of moving anything anywhere are structurally higher now, period.
imo, higher inflation in the short/medium-term is absolutely unavoidable. Powell will be looking at “hot” & “hotter” numbers in June & July, and it will be impossible to hide/paint.
further still, I am convinced that the Fed favors a wave of consolidation @ US banking sector, and CRE is useful tool to get that job done quickly + purge huge chunks of debt off the books. cutting rates now/soon would absolutely send the wrong message to ALL of the likely participants in this bank consolidation (READ: bankruptcies) process.
A lot of people are convinced the Fed should cut, because PCE is close to target, and even if the Fed cuts rates would still be 1-2% which is restrictive enough, and the impact of this comes with a “lag”. This sounds wrong because wages, spending, gdp growth labor etc… are all strong so easing at this point is risky, and service core CPI has been on a tear since the 2nd half of last year, but it looks like the Fed will be ok with PCE going above target for a while. This will only change if the bond market reacts, but then again QT is stopping soon and Yellen going through hoops to reduce long term issuance so supply will be restricted for now.
If the FED continues on its current path, no change in our “means-of-payment” money supply for 23 months, rates will fall in the last half of the year along with inflation measures. I.e., the proxy for inflation will finally fall below zero in the last half of 2024.
It’s all good.
I think I’ll listen to Jerry, since he’s the one in charge.
Hi, Mish, we have no choice but to turn to BLS data and so on but I constantly wonder how concocted ALL of these numbers are??
SUPER CORE PCE is an example of the NEW B.S. methods for reporting Economic Data.
America likes to think that it CHINA that bullscheists the world about their Econ data, but methinks that America has it down pat.
They must misinform, otherwise mayhem
That’s why it’s best to focus on the monthly trends rather than the individual monthly data (which will be revised later anyway). The data will never be accurate. And we should not expect it to be accurate. But it is better than no data at all.
SPX Preempt recessions by about half a year.
God forbid the banks should have to keep paying you 5% on your 6-month CD.
Cutting interest rates in this type of economic environment is known as “Going Full Erdogan”.
Rate cuts are coming. The data (polling data) makes it clear that they are needed.
Sounds like the economy continues to muddle along. No recession in sight yet. Though I continue to sell into strength. Up to 23% cash now. The last three years have been a great period to sell the rips and buy the dips. Hope that people here took my advice on oil stocks like FANG, CHRD and others.
I got into XOM using naked puts and then had been selling Covered Calls. Same with Uranium…Gold, etc. I own NO other stocks.
I trade SPX Strangles weekly using the methods TYLER JEWEL taught…it is a MINTING MONEY program and easy to manage. Those alone, along with MMF’s are paying my bills (substantial, we travel full time, and my fuel Bill on my big bus is Quite High, but it is a blast to own it)…..
So, I trade accordingly. The only big downer are income taxes. I sold my businesses and have no self-employment Depreciation or write-offs, so Uncle Sam is loving my Money.
Nice! Congrats!
Forgot to ask you in your other post about your RV, but given it’s cost (hundreds of thousands), what kind of insurance do you pay to drive it?
I’m really curious on vehicles with that kind of cost because 99.9% of people who are on the road next to you, could never ever afford to repair your vehicle nor would they have the coverage to do so.
Nah, people around here stuck their cash in their sock drawers and kept it there, unless they read this blog purely for entertainment like me. I’d be much, much poorer if I took any of Mish’s recession calls seriously. But I’m guessing people here do, despite his miserable track record (mine isn’t any better, which is why I just shrug and throw extra money into VTSAX anytime I have it). Too bad for them, I guess.
I have been in TDW.
Another big winner over the last 3 years! Congrats!
Forget it, Jake, it’s election year.
It’s when we find out just how NOT independent the “Fed” is.
No landing means no cuts, right? Why mess with rates if the economy/consumer is truly strong and resilient. We are constantly being told that the consumer can handle 5.5% FFR.
So why cut now or ever?
CRE
Rubbish. Mr. Market is VERY adament & clear; The charts tell me that rate cuts are coming and the charts also say how much cuts. I.e. 3 to 4 cuts (= 0.75% or 1.00%).
I have never like you econ policies, Mr. Keynes. 🙂
Mr. Market is a whiney b!tch that deserves CRE collapse + losses.
Fed/Powell will not cut rates in June or July.
The Fed wants/needs a haircut for assets.
Re-inflating asset bubbles is the OPPOSITE of very consistent & clear Fed policy.
“3 to 4 cuts” LULZ… there aren’t that many Fed meetings remaining.