29 Sept 2025
The latest PCE data release showed higher-than-expected consumer income and spending across several categories, surpassing previous figures. This consumer resilience, despite persistent inflationary pressures, highlights the economy's strength but raises concerns about prolonged inflation above the Fed's target.
The PCE data was released according to expectations, except for consumer income and spending, which were higher than anticipated and previous figures.
Personal income reached approximately $95 billion, reflecting an increase. Disposable personal income, after tax deductions, increased to $86 billion. Personal consumption expenditures experienced a growth of about 0.6%.
Increases in personal costs, including total PCE, personal interest payments, and current transfer payments, amounted to about 4.6%. The rise in personal income primarily demonstrates increased compensation and current personal transfer receipts. PCE growth resulted from a $77 billion increase in service costs and a $52 billion increase in goods costs, indicating growth in both sectors. Specific spending increases were observed across all service categories, including transportation, legal services, financial services, healthcare, and utilities. Goods categories also saw increases, encompassing gasoline, energy, apparel, food, and durable goods; the smallest spending increase occurred in furniture and household goods, at 0.024%.
The report indicated US consumer spending increased slightly more than predicted, with inflationary pressures remaining constant, demonstrating consumer resilience. This continued resistance and spending show the economy's strength and ongoing resilience in the current quarter.
Adjusted consumer costs grew by 0.04%, while Core PCE, a Federal Reserve-preferred measure, increased by only 0.02% month-over-month. Year-over-year, Core PCE remained at 2.9%, indicating inflation is still closer to 3% than the Fed's 2% target.
The economy's strength and sustained spending levels depend on the labor market. The labor market, however, exhibits signs of weakness, including a slowdown in hiring rates and moderated average wage growth.
Americans are experiencing 'sticky inflation,' which adds pressure and poses a risk of remaining at high levels. Tariffs, including new drug tariffs, are gradually becoming an economic burden. Many companies initially delayed price increases to deplete inventories, but their profit margins are now at risk unless higher costs are eventually passed on to consumers.
Doubts exist about further interest rate cuts due to inflation remaining above the 2% target. The Federal Reserve's data-dependent approach means future inflation and labor market data will heavily influence its stance on further rate reductions. If inflation growth slows and the labor market weakens, the Fed might consider cuts.
Upcoming data releases coincide with the debt ceiling debate and a potential government shutdown. A shutdown could delay the timely publication of crucial economic data by authorities.
Following the report's release, stock futures saw a slight increase, while bond yields remained at similar levels or traded slightly lower.
The consumer's sustained resistance and spending levels, despite inflationary pressures, indicate a strong economy.
| Key Insight | Description |
|---|---|
| PCE Data Exceeds Expectations | Consumer income and spending were higher than anticipated, surpassing previous figures. |
| Broad-Based Spending Growth | Increases in spending were observed across nearly all service and goods categories, including transportation, healthcare, food, and durable goods. |
| Consumer Resilience | US consumer spending surpassed predictions despite persistent inflationary pressures, demonstrating strong consumer resilience and economic strength. |
| Inflation Above Fed Target | Year-over-year Core PCE remained at 2.9%, indicating inflation is still above the Fed's 2% target. |
| Labor Market Weakness | The labor market shows signs of slowing hiring and moderated wage growth, potentially impacting sustained economic strength. |
| Economic Burdens (Sticky Inflation/Tariffs) | Sticky inflation and tariffs are creating economic pressure on consumers and businesses, potentially leading to price increases. |
| Uncertainty for Fed Rate Cuts | Further interest rate cuts face doubt due to persistent inflation, with future data heavily influencing the Fed's data-dependent policy decisions. |
| Government Shutdown Risk | A potential government shutdown related to the debt ceiling debate could delay the timely release of critical economic data. |
