Pre-Fed Meeting Week, Dissecting the Data – Slowing Disinflation and Robust (For Now) Consumer Spending

Yesterday’s 3Q GDP report indicating 4.9% annual growth, the strongest since 2021.   This indicates a strong consumer….but for how much longer?  Spending rose at a 4% annualized increase in Q3 while income gains lagged well behind that pace.   Savings rates are falling.    Initial jobless claims for last week came in higher than expected – the strong labor market is propping up consumer spending.  Treasury yields actually dropped yesterday as traders focused on the jobless claims (forward guidance) as opposed to 3Q GDP (the rear view mirror)  The 10 year dropped from 4.96% to 4.85%, settling at 4.83% at today’s closing.   Today’s PCE report release (the Fed’s preferred inflation gauge) showed a 0.3% monthly increase in core inflation and a 0.4% “headline” increase.   Of course, 0.3% monthly increase translates to 3.6% annually, still well above the Fed’s 2% target.   The report was within expectations and is not expected to change the Fed’s “no increase” stance at next week’s meeting.   It does show some worrisome inflation “stickiness”  as the path from 3.5% to 2.0% may be a slow grind…stay tuned…..