The core PCE price index ran a touch too hot in September, as the key inflation gauge remained moderately above the Federal Reserve's target amid robust consumer spending. However, the Employment Cost Index, a key measure of wage growth, unexpectedly slowed in Q3. The S&P 500 futures opened solidly lower as investors processed the data and disappointing outlooks from Microsoft and Meta Platforms.
Also on Thursday, the Labor Department reported that initial jobless claims unexpectedly fell in the week through Oct. 26, reflecting a low level of layoffs.
PCE Inflation Report Hits And Misses
The personal consumption expenditures, or PCE, price index rose 0.2%, in line with Econoday's consensus forecast. The 12-month headline inflation rate eased to 2.1%, matching estimates. Headline PCE inflation hasn't been lower since February 2021.
Typically, Federal Reserve decision-making puts more weight on core inflation, which strips out volatile food and energy prices. The core PCE price index rose 0.3% in September, meeting forecasts. However, the 12-month core inflation rate held at 2.7%, counter to forecasts of a dip to 2.6%.
The core PCE inflation data looked more encouraging on an unrounded basis. September's increase was 0.254%, though July and August data were revised up slightly. The 12-month core inflation reading came in at 2.65%. That showed improvement from August's upwardly revised 2.72% figure.
On a three-month annualized basis, the core PCE price index rose 2.35%, while the six-month annualized inflation rate eased to 2.3%. Both readings suggest that the Fed's inflation target appears within reach.
Personal Income, Spending
The PCE price index is part of the Commerce Department's monthly personal income and outlays report. Personal income rose 0.3% vs. 0.4% forecasts.
Personal consumption expenditures climbed 0.5% in September, above 0.4% estimates.
The Q3 GDP report on Wednesday showed that personal consumption rose at a 3.7% pace, adjusted for inflation. That was the fastest growth since Q1 2023.
Employment Cost Index
The Bureau of Labor Statistics reported a 0.8% rise in compensation in Q3, but just 0.7% among private industry workers. That lowered 12-month growth to 3.9% overall, from 4.1% in Q2. In the private sector, compensation rose 3.6% from a year ago, down from 3.9%.
Economists had expected an overall 1% rise in the quarter and 4.1% growth from a year ago.
The main exception to tamer wage growth was among private unionized workers, who saw wages and salaries rise 6.4% from a year ago.
Jobless Claims
New claims for unemployment benefits fell 12,000 from the prior week's revised figure, to 216,000.
Federal Reserve Rate-Cut Outlook
Wall Street sees little chance that the Fed will skip a quarter-point rate cut at next week's meeting, but strong growth and persistent inflation have cracked open the door to a potential pause in December.
After September's core PCE inflation data, market pricing showed 96% odds that the Fed will follow up last month's half-point rate cut with another quarter-point move on Nov. 7. Markets see 75% odds of a further quarter-point cut at the Dec. 18 Fed meeting, up from 72% on Wednesday.
S&P 500
After the PCE inflation report, the S&P 500 traded off 1.4% in Thursday afternoon stock market action. On Wednesday, the S&P 500 slipped 0.3%, finishing less than 1% below its Oct. 18 all-time closing high. The S&P 500 is up 21.9% year to date.
The 10-year Treasury yield rose four basis points to 4.28%, but stopped short of a breakout above recent highs.
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