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02 01 2016 | by Victor Xing | Economics

December PCE and the curious case of durable goods

The December PCE (Personal Consumption Expenditures) came in below consensus at -0.095% MoM vs. 0.0% expectations.  Despite goods and energy components again led the decline, services and Core PCE also softened, a likely result of pass-through dis-inflationary pressure from both import (goods prices from China) and energy channels.

On a month-over-month basis:

  • Headline PCE at -0.095% MoM vs. 0.0% consensus
  • Core PCE (Ex-food & energy) at 0.043% MoM vs. 0.1% expectations
  • PCE Energy Goods and Services at -2.590% MoM vs. -1.370% prior
  • PCE Services at 0.106% MoM vs. 0.261% prior
  • PCE Durable Goods at -0.135% MoM vs. -0.331% prior
  • PCE Goods at -0.515% MoM vs. -0.330% prior
December PCE - MoM changes
December PCE – month-over-month changes

It is worth noting the energy goods and services index in the above chart is shown on the right axis.  The chart becomes more striking with all percentages on the left axis.  Such is the extent of energy volatility:

December PCE - energy inflation vs. other components
Out-sized moves in energy inflation

Moreover, the softness in durable goods inflation appear to be part of a secular downtrend that began in mid-1995 (when the index reached its peak).  The nondurable goods (which also includes energy) and energy indices have declined sharply since 2H 2014, while momentum in services and food inflation have remained relatively strong.  This certainly raises additional questions on monetary authority’s reaction function amid both secular and transient factors, and it is an area that will warrant further research.

December PCE - secular weakness in goods inflation
The secular weakness in durable goods inflation since mid-1995

Finally, the year-over-year reading on the December PCE is as follows:

  • Headline PCE at 0.576% YoY vs. 0.442% prior
  • Core PCE (Ex-food & energy) at 1.411% YoY vs. 1.382% prior
  • PCE Energy Goods and Services at-13.618% YoY vs. -15.854% prior
  • PCE Services at 1.916% YoY vs. 1.942% prior
  • PCE Durable Goods at -1.403% YoY vs. -1.768% prior
  • PCE Goods at -2.158% YoY vs. prior vs. -2.589%
December PCE - YoY change
Personal Consumption Expenditures – YoY change

Similar to above, the changes in the energy component dwarf other indices:

December PCE - YoY change with energy inflation in-focus

Next article01 31 2016 | by Victor Xing | Economics

Did Federal Reserve’s easy policy create distortions?