Fed Board Meeting Statistics and the Decline of the Consumer Price Rises in November, and Implications for the Gross Domestic Product and the Services Sector
The Federal Reserve’s preferred measure of inflation showed that prices rose at a moderate rate in November, providing another indication that the high prices have come to an end.
The PCE increased in November by 5.5%, the Commerce Department reported Friday. That’s lower than in October, when prices rose 6.1% annually.
The annual increases for both PCE inflation indexes have decreased since October of 2021, after declines in other inflation indicators.
Friday’s report also showed that spending continued to rise in November, but at a much slower pace than in previous months. Spending was up 0.1% in November as compared to 0.8% the month before. Personal income went down from October to November.
The latest projections from the Fed showed that they expect inflation to remain higher for longer than previously thought. Fed board members now think that PCE inflation will be at 3.1% and core PCE will be 3.5% next year, both above the central bank’s target rate.
In its seven meetings starting in March, the central bank’s policymaking arm raised its benchmark interest rate by a cumulative 4.25 percentage points. The mortgage rate went up more than double the rate seen last year at this time, and its effects have begun to trickle through the economy, where it will be felt in areas such as real estate.
She stated that the outlook for the economy was still relatively weak. The viability of robust consumer spending is dependent on continued strength in incomes and labor markets.
However, inflation within the services sector has been a little “sticky,” and not abating as quickly. Faucher noted the services index posted a monthly increase of 0.4% but a year-over-year increase of more than 11%.
While much of the services inflation is due to housing costs, which are rapidly reversing, the Fed is concerned that strong wage growth could fuel persistent increases in services prices and overall inflation, he added.
Wage growth and services inflation are slowing, so the fed funds rate will have to be increased until it becomes more apparent that the job market is cooling, he said.
Source: https://www.cnn.com/2022/12/23/economy/pce-inflation-november/index.html
December New Manufacturing Orders, Inflation, and Confidence in the Context of a Growing Uncertainty about the Economy
The Commerce Department’s report showed that new orders for manufactured goods fell in November, the biggest monthly decline since the beginning of the Pandemic.
Transportation equipment, specifically new orders for non-defense aircraft and parts, drove the decline, according to the report. Excluding transportation, new orders increase 0.2%.
“Core durable goods orders slowed but did not contract, reflecting growing unease about the economy,” Diane Swonk, chief economist for KPMG, tweeted Friday after the report’s release. “Manufacturing activity has begun to contract and prelim reading for December suggests it will contract further at year end. A cold winter expected for the manufacturing sector.
Inflation expectations fell to the lowest level in 18 months in December, and the report showed the biggest improvement in sentiment about business conditions. This is a key data point for the Federal Reserve. If consumers believe prices will remain high, that could factor into increased wage demands, which could cause businesses to raise prices.
The final December reading for the index of consumer sentiment came in at 59.7 in December, up slightly from a preliminary measurement of 59.1 and November’s final reading of 56.8, according to data from the university’s Surveys of Consumers.
The Conference Board’s consumer confidence index jumped to its highest measurement in nearly 2 years earlier this week, reflecting consumers’ view of the economy.
Consumer prices rose in December from the previous month and did not fall as previously thought, according to revised data from the Bureau of Labor Statistics.
The seasonal adjustment factors are computed by the BLS every year. The year over year data is not revised.
The November and October revisions show slight shifts in the month-on-month inflation trend for 2022, with a change of 0.1 percentage points.
The revisions of the core index in December and November was 0.4% and 1%, respectively.
What are the latest BLS tweaks and how to measure and adjust it, and what will they tell us about the future of the US economy?
“There’s not usually a whole lot of focus on it, but given the magnitude of inflation and the volatility of macro fundamentals these days, it’s probably gotten a little bit more attention than typical,” he added.
The latest BLS tweaks show the importance of not reading into any one data point but instead reviewing a variety of different metrics over a longer-term period, he said, a point that has been repeatedly stressed by officials such as Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen as they measure the path of inflation.
There is an annual revisions as well as a change in its methodology just days before the January report is released, and there will be some modifications of its own.
William Blair analyst Richard de Chazal commented in a note Friday that the 2023 inflation report would be based on consumer spending patterns from 2021, as opposed to spending data from 2019-2020. The BLS believes that this makes the data more timely and relevant.
Diane Swonk, the chief economist at KPMG, said in a reply to a follower that the adjustments could help gauge economic activity.
The US statistical agencies work very hard to measure and adjust data accurately to reflect what was once considered normal season variations, even though the economy is still emerging from the swine flu epidemic, and the surge of extreme weather events we are enduring can distort normal seasonal patterns.
“Those shifts, coupled with the rapid pace at which the economy is currently shifting has made measuring current economic conditions more difficult. She said it’s difficult to tell where the economy is headed.