Personal Income and Spending came in better than anticipated, while the inflation component, which weighs heavily in Federal Reserve decision-making, was benign. Core PCE (excludes food and energy) year over year was 1.6%, which is a long way from the targeted 2.0%. In many ways, this was the perfect report, not just on the health, but also how households remain disciplined.
Meanwhile, Consumer Confidence came in better than expected, and it remains elevated. There are major divergences between households and how we feel now versus six months from now.
Expectations were dragged down by the top one third income households who cite tariffs up 45% from 30% in the prior month. Note: expectations peaked in 1987 reflecting the guarded nature of a nation always on guard and bracing for bad news.
Not Too Exuberate
Just because the stock market is at an all-time high, it’s a huge mistake and media malpractice to say investors are "euphoric," but the non-stop effort to trip the market never stops. The fact is just as consumers have been on guard about the future for more than two decades, individual investors remain overly cautious.
AAII Individual Investor Sentiment
The Chicago PMI was a disaster, dipping into contraction for the first time since January 2017. New Order Index plunged to a reading of 49.6 from 58.6. The ISM manufacturing number is out on Monday morning, and we must brace for a potential disaster.
The Fed must know this, and I wonder how embarrassed they will be if the ISM has shifted into contraction. If that’s the case, look for talk of a 50-bps cut to get louder.
Have a great weekend.
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