Inflation rose in October roughly in line with estimates, sending a sign that price increases may at least level off, the Commerce Department reported Thursday.
The Core Personal Consumption Expenditure Price Index, a gauge that excludes food and energy and is favored by the Federal Reserve, rose 0.2% for the month and 5% from last month. a year ago. The monthly increase was below the Dow Jones estimate of 0.3%, while the yearly gain was in line.
The gains also represent a deceleration from September, which saw a monthly increase of 0.5% and an annual gain of 5.2%.
Including food and energy, the overall PCE increased by 0.3% on the month and 6% on an annual basis. The monthly increase was the same as September, while the annual gain was down from the 6.3% pace.
The ministry also reported that personal income jumped 0.7% for the month, well ahead of the 0.4% estimate, and spending rose 0.8%, as expected.
In another key report, a widely watched indicator of manufacturing activity posted its lowest level in two and a half years for November.
The ISM manufacturing index recorded a reading of 49%, representing the level of companies reporting expansion for the period. The reading was 1.2 percentage points lower than October and the lowest since May 2020, when the Covid pandemic began.
Declines in order books and imports were the main drags on the index. The closely watched price index fell 3.6 points to 43%, indicating that inflation is slowing, while the employment index also fell, down 1.6 points to 48.4% in contraction territory.
Markets were mostly down after the morning data, with the Dow Jones Industrial Average down more than 250 points in early trading while the S&P 500 and Nasdaq Composite posted smaller losses.
“This morning’s data was a Goldilocks report as it showed core inflation continued to decline,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “If inflation continues to fall, markets will continue to rise, as investors conclude that the Fed won’t need to raise rates as high, or keep them high for as long, as previously predicted.”
While the Fed considers a wide range of measures to measure inflation, it prefers the PCE index because it takes into account changes in consumer behavior such as the substitution of cheaper goods for more expensive items. This is different from the consumer price index, which is a crude measure of price changes.
Policymakers view core inflation as a more reliable measure because food and energy prices tend to fluctuate more than other items.
In other economic news Thursday, the Labor Department reported weekly jobless claims stood at 225,000, down 16,000 from the previous week and below the estimate of 235,000.
Another jobs report from outplacement firm Challenger, Gray & Christmas said planned layoffs rose 127% on a month-to-month basis in November and 417% from a year ago. Even with that massive increase, the company noted that the year-to-date layoff total is the second-lowest on record in a dataset dating back to 1993.
The data comes at a pivotal time for the Fed, which is in the midst of a campaign to raise interest rates in an effort to bring down inflation.
In a speech on Wednesday, Chairman Jerome Powell said he saw signs that price increases were easing, but added he needed more consistent evidence before the central bank could change policy. He did, however, indicate that he believed rate hikes could start to taper off, possibly as early as December.
“The truth is that the way forward for inflation remains very uncertain,” Powell said.
PCE data showed that the numbers remain volatile. Goods inflation rose 0.3% for the month after declining in the previous three months, while services inflation rose 0.4%, down from two consecutive increases of 0. .6%. Economists are looking for a return to a more service-based economy after outsized demand for goods played a major role in soaring inflation in 2021.
Food inflation rose 0.4% while prices for energy goods and services rose 2.5%.
The Fed is watching the labor market closely for more signs of slowing inflation.
Unemployment insurance claims had risen slightly and the level of continuing claims rose by 57,000 to 1.61 million, the highest level since February.
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