Wall Street equities jumped as the dollar fell against a basket of currencies. US Treasury prices rose.
It was the highest 0.6% increase in PCE services inflation excluding energy and housing since March 2022 after 0.3% in December. In January, super core inflation jumped 3.5% after 3.3% in December. Super core inflation rose 4.1% yearly in the past three months. Super core inflation is tracked by policymakers.
Financial markets expect a June rate cut, not May. Since March 2022, the U.S. central bank has raised its policy rate 525 basis points to 5.25%-5.50%. Price-sensitive shoppers trimmed spending last month as inflation climbed.
Consumer spending—more than two-thirds of U.S. economic activity—rose 0.2% following 0.7% in December. When adjusted for inflation, spending fell 0.1% after rising 0.6% in December. Consumer spending may have decreased in the first quarter after propelling economic growth in Q4 2023.
A tight job market boosts spending, but unemployed people take longer to find work. The Labor Department said Thursday that state unemployment compensation claims jumped 13,000 to 215,000 for the week ending Feb. 24. One week of aid, a proxy for hiring, increased benefits by 45,000 to 1.905 million in the week ended Feb. 17. The government's February household unemployment survey was included in ongoing claims data.
Continuing claims rose in January and February, suggesting the unemployment rate could rise from 3.7%. A Conference Board survey on Tuesday revealed consumers less enthusiastic about February's labor market.
The work market supported 0.4% wage growth and 1.0% personal income growth in January. That followed December's 0.3% gain, the year's largest. Social Security recipients' 3.2% cost-of-living adjustment and Costco Wholesale Corp. dividends raised income.
After a 0.3% rise in December, a sharp tax increase and inflation kept family income static. Since income outpaced consumption, the saving rate rose to 3.8% from 3.7% in December.
"Consumer spending will rise gradually in 2024, but at a slower rate than in 2023 as job and wage gains soften," said PNC Financial chief economist Gus Faucher. "The economic expansion should continue throughout this year and into next."
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