• PCE Index (Year-over-Year): 2.5% 
• Previous: 2.3% 
• Actual: 2.6%

• Initial Unemployment Claims: 222,000 
• Previous: 217,000 
• Actual: 218,000

• Core PCE Index (Year-over-Year): 2.7% 
• Previous: 2.7% 
• Actual: 2.8%

What is the PCE Index? 

The Personal Consumption Expenditures Index measures the annual change in consumer spending, a critical component of US economic growth. The Federal Reserve closely watches this index as a key indicator of inflation, which helps shape its monetary policy decisions. 

Initial Unemployment Claims Explained 

This weekly report counts the number of new claims for unemployment benefits, providing a timely snapshot of the labor market’s health. Sudden increases can signal weakness, while decreases indicate strengthening employment conditions. 

Core PCE Index: The Inflation Gauge 

The Core PCE Index excludes volatile food and energy prices to give a clearer picture of underlying inflation trends. It is the Federal Reserve’s preferred measure for assessing inflationary pressures in the economy. 

Market Impact and Policy Relevance 

Strong or weak readings in these reports can significantly influence financial markets, including the US dollar, equities, and bond markets. Moreover, the Federal Reserve uses these indicators to guide interest rate decisions and assess the economy’s trajectory.

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A report released by the US Commerce Department on Friday indicated a slight slowdown in consumer spending last month. The easing price pressures and cooling labor market could bolster the Fed’s confidence that inflation is moving towards its 2% target.

The Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, rose 0.1% in June, following a flat reading in May. This suggests that inflationary pressures may be easing.

“The key question now is whether the positive momentum we’ve seen over the last three months will continue through to the September meeting,” said Olu Sonola, chief US economist at Fitch Ratings. “While the Fed will have one eye on recent labor market developments, it’s likely to use the upcoming meeting to set the stage for a rate cut in September.”

Kathy Bostjancic, chief economist at Nationwide, noted that the improving inflation data suggests that the surge in inflation seen in the first quarter was transitory. “Moreover, if rent inflation has finally peaked as the latest data suggests, then inflation appears to be returning to a more sustainable downward trend,” she said.

As demand in the economy has cooled in response to the Fed’s aggressive monetary policy tightening in 2022 and 2023, the pace of economic growth has slowed. While the economy grew at an average annual rate of 2.1% in the first half of this year, it expanded at a 4.2% pace in the second half of 2023.

Economists at Bank of America Securities estimate that approximately $400 billion of excess savings accumulated during the COVID-19 pandemic remains, but at the current pace of depletion, it could be exhausted by the end of the year.

“Elevated savings have been supporting consumer spending and likely encouraged more saving for precautionary reasons,” said Veronica Clark, an economist at Citigroup. “But overall spending seems to be slowing more than income, which is consistent with lower saving. Conversely, a very low savings rate could signal the risk of a sharper decline in spending as the labor market weakens.”

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