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12 23 2015 | by Victor Xing | Economics

November PCE: the energy drag persists

The November Personal Consumption Expenditures (PCE) came in largely on-consensus with the goods component remained soft in sympathy with WTI crude futures’ decline from mid to low 40s, before dipping to mid 30s in December.

PCE on a month-over-month basis

  • Headline PCE (Federal Reserve’s price stability policy objective) at 0.028% vs. 0.1% expectations
  • Core PCE (ex-food and energy) at 0.113% vs. 0.1% survey
  • Goods (goods including food and energy) at -0.352% vs. -0.072% prior
  • Core Goods (goods ex-food and energy) at -0.188% vs. -0.183% prior
  • Services (services including utilities) at 0.210% vs. 0.116% prior
  • Core Services (services ex-utilities) at 0.205% vs. 0.122% prior
PCE components (MoM)
Personal Consumption Expenditures components (MoM)
Services PCE remain stable
Personal Consumption Expenditures (MoM)

PCE on a year-over-year basis

The data looks slightly less gloomy on a YoY basis, partly due to oil’s significant decline in November 2014 (WTI fell from 80 to mid 60s) making the latest weak patch in oil appear less notable:

  • Headline PCE at 0.393% vs. 0.4% expectations
  • Core PCE at  1.317% vs. 1.3% survey
  • Goods at -2.615% vs. -3.116% prior
  • Core Goods at -0.639% vs. -0.819% prior
  • Services at 1.881% vs. 1.885% prior
  • Core Services at 1.988% vs. 1.997% prior
PCE components (YoY)
Personal Consumption Expenditures components (YoY)
PCE - YoY

Personal Consumption Expenditures (YoY)

Overall, services inflation continue to hover near mandate levels, and the energy story has only further deteriorated in December to weigh on goods inflation.  Nevertheless, an upside surprise in energy remains a danger for a reset in current FED policy expectations.  Interest rates markets are currently pricing in slightly more than 2 hikes for 2016, less than the Federal Reserve’s median “dot plot” consensus in the December Summary of Economic Projections.
Original Quora article

Next article12 21 2015 | by Victor Xing | Central Banks

Federal Reserve’s ON RRP: 3 days later