Core PCE Increased More Than Expected

Pre-market futures are down this morning following the release of Personal Consumption Expenditures (PCE), but to be fair, futures are already down before this report was released. The Dow is currently down -90 points, the S&P 500 is -16 and the Nasdaq is -80 points at this hour. Bond yields are hovering steadily in the +4.32% range on the 10-year, +3.98% on the 2-year.

PCE Levels Show Inflation Warming Up

The Fed’s preferred inflation gauge, the monthly PCE report, shows headline steadiness with some undercurrents of inflation getting a bit warmer. Needless to say, this is not what analysts were hoping for, with tariff measures on deck for next week.

Personal Income for February actually doubled expectations to +0.8%, up from the downwardly revised +0.7% the previous month. Still, not too shabby on the income side. Meanwhile, Personal Spending swung to a positive as expected, but 10 basis points (bps) lower, to +0.4%. The previous month was revised down 10 bps to -0.3% on the spending side. So we see the consumer doing fairly well on these metrics.

Headline PCE Index month over month was eminently steady at +0.3%, with year-over-year remaining at +2.5%. These are still higher than the Fed’s optimum inflation level of +2%, but hovering within range. It’s hard to take issue with these figures.

On the core side — stripping out volatile food and energy prices — we see these numbers creeping up: +0.4% on core PCE month over month, the warmest since January of 2024, and +2.8% on core PCE year over year. Both of these are 10 bps higher than anticipated, and at +2.8% we’re only modestly below the +2.86% we saw in December. We can call this progress, but only through a magnifying glass.

What to Expect from Today’s Stock Market — And Next Week

Once regular trading gets underway this morning, we’ll see the final print on Consumer Sentiment for March from the University of Michigan. In the preliminary report, we saw this headline sink to 57.9, the lowest in two and a half years, and below the 63.1 expected. It was the third-straight downward move, and well off 12-month highs from last April of 77.2. Inflation Expectations shot up to +4.9% from +4.3% in the previous read.

Next week is Jobs Week. From JOLTS figures for February to ADP (ADP) private-sector payrolls to Weekly Jobless Claims and Friday’s big nonfarm payroll report from the U.S. government, we should get a clearer illustration of whether the labor market is weakening.

We haven’t seen much evidence of it thus far, even with the DOGE policy taking a chainsaw to the federal workforce. Last month, 151K new jobs were filled in the Employment Situation report, with the Unemployment Rate a still-robust +4.1%. Perhaps the domestic workforce really is robust and will post another month of meaningful job growth. Then again, maybe it won’t.

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