A heavy morning of economic data set the tone for the trading day.
PCE and Inflation
The top data point was personal income and outlays, which contains the PCE data the Fed watches closely. Personal income rose 0.2%, less than expected, and last month's figure was revised lower. So income is lower overall, up just 0.2%. Personal consumption expenditures rose 0.9%, a tenth better than expected and up from 0.210 (0.2%) a month ago. Income is down, but spending stayed high at 0.9%.
On inflation, the PCE price index rose 0.3% month over month, a tenth lower than the roughly 0.4% expected. Year over year, PCE came in at 3.4%, which is 0.310 (about 0.3 points) lower than last month and lower than expectations. Core PCE, which strips out food and energy, rose 0.2% month over month, a tenth lower than expected. Year over year core PCE came in at 3%, again about 0.3 points lower than last month and lower than forecast. Solid numbers showing inflation cooling.
The reaction: yields dropped, stocks rose, and the odds of a Fed move for October fell to 37.7%, down from 70% a couple of days ago. That is a large, fast move. One Fed speaker said policymakers can afford to wait. The timing matters because this comes 6 days before the US midterm elections, a period when the Federal Open Market Committee is cautious about acting.
ADP Private Payrolls
ADP private payroll data beat expectations, coming in at 90,000 against a forecast of about 70,000, up from 38,000 prior.
By company size:
- 1 to 19 employees: up 18,000
- 20 to 49: up 5,000
- 50 to 249: up 18,000
- 250 to 499: up 36,000
- 500 and higher: up 14,000
Gains spread across all company sizes. By sector, education and health services added 55,000 jobs, leisure and hospitality 22,000, manufacturing 17,000, and construction 15,000. Financial activities lost 16,000 jobs and professional and business services lost 11,000. The job losses in financials and professional services are a little worrying, since some banks posted record results not long ago.
A strong private payroll number does not always predict Friday's non-farm payroll report. Sometimes they line up, sometimes they do not.
GDP
The third and final look at second-quarter GDP surprised to the upside, jumping to 2.2% from 1.5% at the second look. Personal consumption expenditures within GDP also rose, from 3.4% to 3.8%. The revisions were positive on both. This shows consumers remain resilient regardless of prices. Carnival Cruise Lines (CCL) reported strong cruise bookings, matching that spending pattern.
Oil and Yields
Crude oil traded at about $90, up roughly 0.9%, or about 84 cents. The day before, crude was down while yields were higher; at the start of this day the pattern flipped - crude up, yields lower at 5.22%. Both yields and crude are worth watching as the data plays out.
JP Morgan (JPM) and Goldman Sachs (GS) said oil is flowing at almost full force. The president has said oil has been flowing, but this claim is close to hard to believe. The open question is whether oil holds at $90 or trends lower.
More data comes Thursday, with non-farm payrolls on Friday, making this a big week for economic releases.
