US: August personal spending m/m up 0.4%

While the PCE metric preferred by the Fed for the inflation target points to a slight gain of 0.3% for the headline, the strong course in prices excluding food and energy continued with an above-expected increase of 0.4%. In particular, the upside surprise in the core PCE indicator confirmed the negative high inflation effect of the CPI. On the headline PCE, compared to 6.2% (down from 6.4% in the previous month), the price indicator increased from 4.7% to 4.9% (monthly increase 0.6%) on a core basis (extremely strong).

If we look at the sub-items; Real personal expenditures increased by 0.1%. Lower gasoline prices may have aided discretionary spending on goods and services during the month. In the previous month's data, there is a negative revision from 0.2% to -0.1%. Personal income growth increased slightly, 0.3%, in line with the pace from wages and salaries. Disposable income growth is at 0.4% and this could help keep consumer spending growth positive in 3Q22. However, milder-than-expected August retail sales and downward revisions to previous months mean downside risk to current real growth rates for the entire quarter. The jobs report for August pointed to milder labor income growth after a jump in July. The savings rate fell to 3.5%, the lowest in the pandemic period, in August (below the July level of 5% and the 2019 average of 7.6%). Households are taking advantage of savings and using more credit this year.

Income growth is strong. Consumer spending will need to remain flexible to avoid the third consecutive decline in real GDP in 3Q22. August data can be expected to show that this is the case. But expanded revisions mean there's more uncertainty than usual. As for the Fed's preferred PCE metric, we forecast another slight gain for the headline, but strong in prices excluding food and energy. This reflects strong CPI figures in September, which bolstered the Fed's hawkish communications.

If we look at the Fed's point of view; As the data confirms the strong CPI figures that support the Fed's hawkish communication in September, there will be no softening in the expectations for the next rate hike decision. The FOMC's updated forecasts were more significant than the third consecutive 75 basis point gain at the September 20-21 meeting. The projections put forth showed how high the committee thought rates should be to suppress inflation. Markets have priced in the 4.5% ceiling, and extra thoughts on the future can be supported, especially strong inflationary data may force the ceiling to be updated to 5% from 4.5%.

Kaynak: Tera Yatırım-Enver Erkan
Hibya Haber Ajansı