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The Economy

July 2, 2014 | Weekly Commentary

The Personal Consumption Expenditures index (PCE) advanced 1.8% in May from a year earlier, the Commerce Department reported.  PCE measures the prices paid by consumers for goods and services to reveal underlying inflation trends.  Excluding volatile food and energy costs, prices rose 1.5% in May.  Shelter costs such as higher rents pushed prices higher and medical costs are showing signs of a pick-up.  PCE is an important indicator as the Feds policy has been using this as an indicator for its interest rate policy.  For now the gauge remains below the Feds 2.0% threshold, but it remains an important data point worth watching.

Personal incomes increased .40% in May over the prior month and over the last 12 months the gauge has increased 3.43%.  This is a good sign as growing incomes normally translate to increased consumer confidence as you will see below, and additional consumer spending.  This is important for our economy as consumer spending makes up roughly two thirds of US Gross Domestic Product.

In other economic news new home sales increased to 504k in May, marking a big jump from Aprils 425k.  Existing home sales rose in May and is now on a two month upward trend.  Consumers remain confident as the Conference Board Consumer Confidence index read 85.2 in June, higher than the prior months reading of 82.2.

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