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Entrepreneurs just got another good piece of economic news. The Federal Reserve's favorite measure of inflation cooled again last month, hitting its lowest level in almost three years.
The core personal consumption expenditures price index, which strips out the more volatile price changes of food and energy, increased at an annualized rate of 2.9 percent in December, down from 3.2 percent the month prior, according to data released by the Bureau of Economic Analysis on Friday. On a monthly basis, the core PCE index ticked up from 0.1 percent in November to 0.2 percent in December.
"That's the number to watch," says ZipRecruiter chief economist Julia Pollack. What's more important than the monthly measures of the PCE index, Pollack explains, is how the index trends over a three and six-month annualized basis, and this latest report showed that core inflation increased by 1.5 percent on a 3-month annualized basis and 1.9 percent on an annualized 6-month basis--both below the central bank's goal of 2 percent. "There's a reason the Fed targets PCE," she says. "Anything that's the same or lower is very good news and should give the Fed a lot of confidence."
This latest report provides further evidence of just how wrong all the economists, Wall Street analysts, and experts were about 2023. The most anticipated recession in history never materialized. The labor market remained strong, and people felt confident enough to keep spending their paychecks, which powered the economy forward. That sort of momentum should give entrepreneurs some peace of mind about how economic and business conditions will fare in the year ahead.
The report also offered more evidence of just how resilient the American consumer has remained, even in the face of elevated prices. Last month, personal spending increased at an annualized rate of 0.7, up 0.4 percent in November. On an inflation-adjusted basis, consumers spent 0.5 percent more in December than they did during that same month the year before. Shoppers, still hungry for in-person experiences, spent more heavily on services rather than goods. Some of the services that consumers spent most heavily on were financial services, health care, and recreation, which was led by gambling.
Taken together, this new data showing robust consumer spending and inflation cooling faster than anticipated is "the best of both worlds" for the Federal Reserve, said Wells Fargo senior economist Tim Quinlan and economist Shannon Seery Grein. The "December personal income and spending report spiked the ball in the end zone on a year that defied expectations," they wrote in a note reacting to the report. "We no longer think that a downturn in consumer spending is in the cards this year."
Still, that 2024 projection came with some caveats. The Wells Fargo economists cautioned, "That does not mean that households are in great shape. Some of the strength in recent spending was made possible by increased usage of consumer credit." While data from December is not yet available, they noted that in November, consumers racked up the fourth-largest percentage increase in revolving credit on record.
Personal income also grew in December, rising by 0.3 percent year-over-year largely thanks to an increase in compensation. Real disposable income, which is adjusted for inflation and taxes, eked out an annualized 0.1 percent gain last month, down from 0.5 percent in November. But as consumers continued to spend their hard-earned wages or pull out their credit cards, the personal savings rate fell to 3.7 percent in December, the lowest rate of 2023.
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In Another Economic Bright Spot, the Fed's Preferred Inflation Gauge Cools in December
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27.01.2024
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Entrepreneurs just got another good piece of economic news. The Federal Reserve's favorite measure of inflation cooled again last month, hitting its lowest level in almost three years.
The core personal consumption expenditures price index, which strips out the more volatile price changes of food and energy, increased at an annualized rate of 2.9 percent in December, down from 3.2........
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