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Fed's Favorite Inflation Gauge Shows Sign of Decline

We begin a final trading day of the week with our fingers crossed — the Dow, currently +4.4% since Monday morning, is looking for break an 8-week losing streak. This is only the worst stretch on the blue-chip index in the past 99 years.

And while it looks a safe bet that the Dow will finish higher for the week, whipsaw trading over the past couple months has at time been merciless — kind of like taking only a 2-point lead into the 4th quarter versus the Golden State Warriors: you’re likely to get buried before the end of the game. But if we’re looking for more good news, pre-market futures bounced from flat to up on new economic data this morning:

Personal Consumption Expenditure (PCE) inflation for April reached +0.2% month over month, well below the +0.9% posted for March, which itself was a 17-year high. Stripping out volatile food and energy, this print comes in-line with expectations and the same as a month ago: +0.3%. This indicates that current inflation metrics are mostly as the gas pump and the supermarket, which you likely already know.

Year-over-year PCE inflation is one of the key metrics tracking overall inflation in the U.S. economy, and here we see a +6.3%, down 30 basis points from the March read, which at +6.6% was the highest pinnacle we’d reached since President Reagan’s first term, 1982. Core PCE inflation year over year came in-line at +4.9%, again down 30 basis points month over month. These are all good developments for those of us interested in seeing overall inflation come down.

Real Disposable Income was exactly flat for April, a big improvement from the -0.5% registered a month ago, while Real Personal Spending bumped up to +0.7% from +0.5% in March. So while the consumer continues to chug along — being more selective, perhaps out of necessity with sky-high gasoline prices, as we saw in a plethora of Q1 earnings reports from the Retail space — they continue to fight through the economic squeeze which, it looks like, is already starting to ease up. A few more months in this direction would be like manna for the markets.

Advance Trade in Goods, also for April, also eased month over month: -$105.9 billion was a big step in the right direction from the -$125.9 billion registered in last month’s print — the largest-ever monthly headline deficit in the history of this record keeping. Retail Inventories were lower than expected at +0.7%, while Wholesale was in-line at +2.1%. Again, metrics are cooling the burn from previous months.

That’s what pre-market investors think, too: from flat early-morning levels to the Dow now +120 points, the S&P 500 +30 points and the Nasdaq +130 points, it would appear there is a tad bit of relief on inflation concerns. Thus, perhaps there will be some more faith that the Fed will be able to land this economic plane safely, after all.

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