Exploring Economic Indicators: PCE Inflation, GDP, and Consumer Sentiment

Policymakers, advisors, and analysts closely monitor economic indicators because they provide information on the health and performance of the U.S. economy. This information enables them to make informed decisions regarding business strategies and financial markets. In the week ending April 25, the SPDR S&P 500 ETF Trust (SPY) rose 0.79% while the Invesco S&P 500 Equal Weight ETF (RSP) was up 1.97%. The Fed is scheduled to meet this week, where it is expected to hold rates steady between 5.25% and 5.50% for a sixth straight meeting.

This article takes a deeper look at three important economic releases from the past week: personal consumption expenditures (PCE), gross domestic product (GDP), and consumer sentiment. These indicators provide insights into the country’s economic landscape, with a particular focus on consumption and consumer attitudes. By understanding consumers' attitudes toward the economy, we can gauge their spending patterns, which significantly drive overall economic growth.

Personal Consumption Expenditures (PCE)

The Fed’s preferred inflation gauge rose more than expected in March. The Core PCE Price Index, which measures inflation excluding volatile food and energy prices, rose by 2.8% compared to the previous year, unchanged from February. Inflation was expected to decelerate at its steady pace as it has been over the past year to 2.6% last month.

Despite the higher-than-anticipated reading, core PCE still sits at its lowest level in the past three years. Additionally, headline PCE accelerated for a second straight month from 2.5% in February to 2.7% in March. That was higher than the anticipated 2.6% growth. On a monthly basis, both headline and core PCE rose 0.3% from February as predicted. Overall, the latest PCE numbers were surprising but not alarming. The Fed will most likely remain patient with its first rate cut as it needs clearer signs of where inflation is heading.