Reports published on Thursday indicate that high inflation has eroded consumer spending and income, while a weekly layoff index remained at low, comfortable levels.
PCE Inflation
The Federal Reserve’s preferred measures of inflation continued to accelerate in February, similar to another common inflation gauge, the Consumer Price Index. Prices rose by 6.4% in February, faster than the 6.0% rate in January and the fastest jump over 12 months in the past 40 years, according to the Bureau of Economic Analysis in its report on personal consumption expenditures, also known as PCE. Prices increased by 0.6% over the month, up from 0.5% in January, although “core” prices – which exclude food and energy – slowed slightly, rising by 0.4% in February compared to 0.5% in January. Analysts said the report makes it likely that the Federal Reserve will raise its benchmark interest rate even more than previously expected, possibly by 0.5 points at its next meeting in May, in an attempt to cool inflation.
Personal Income and Spending
Data from the Bureau of Economic Analysis showed that inflation has reduced purchasing power for shoppers and forced them to cut back on their purchases even as they received higher wages. Inflation-adjusted consumer spending fell 0.4% in February despite a slight rise in total dollars spent, indicating that people’s money did not go far due to rising prices. Disposable income increased by the same amount in dollar terms – thanks to rising wages due to strong labor demand – but decreased by 0.2% when adjusted for inflation.
Initial Unemployment Claims
The number of initial unemployment claims last week (i.e., people filing for unemployment benefits for the first time) remained within the normal range prior to the COVID-19 pandemic, despite a slight rise from the previous week. The Labor Department reported 202,000 claims, which is 14,000 more than the week before. The data suggests that companies are not laying off workers but rather face the opposite issue – more available job openings than people to fill them, according to analysts. Weekly figures took a year and a half to return to pre-pandemic levels but have remained within that range since December. (There was one exception for a few weeks in January when we felt a rise in virus cases in the economy.) By comparison, claims were in the millions in the early months of the pandemic – more than 6 million in one week – when companies were cutting back or shutting down operations.
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Sources:
– Bureau of Economic Analysis. “Personal Income and Outlays, February 2022.”
– Grant Thornton. “Inflation Affects Spending.”
– Labor Department. “Weekly Unemployment Insurance Claims.”
– Moody’s Analytics. “Real-Time Economic Outlook: U.S. Unemployment Claims.”
– Federal Reserve Economic Data (FRED). “Initial Claims.”
Source: https://www.thebalancemoney.com/inflation-erodes-wage-gains-eats-into-spending-5224295
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