Thursday 1 March 2018
Core-PCE starts to firm up
Core-PCE has been held back in the last year by weakness in autos, durable goods, apparel and food, while the service parts of the economy were seeing inflation more in the 2-2.5% range. I wrote an article on what was holding back the numbrs last year:
The BEA stopped publishing sub-tables last August but some are in the CPI release. January numbers suggest prices improving in the durable goods sector, while apparel has also improved.
The Census Bureau also shows durable goods orders/ shipments up 8/9% YoY with broad-based growth.
Without hedonic adjustments and the few pockets of weakness, some of which seem to now be improving, Core-PCE would already be above 2%, maybe closer to 2.5%, vs 1.5% Fed funds. If we get some improvement in wages it will further underpin it.
Wages grew faster than GDP the first half of last year but then seemed to stall in the second half and grow more or less inline with GDP resulting in onlt a small increase in wages/ GDP in the second half.
You simply cant 'MAGA' without wages growing as a % of GDP. Seems to be off the bottom, but there is a long way to go yet.
Government transfers muddies the picture on total income, but put simply, higher domstic manufacturing, less imorts, higher savings, more capex and more domestic high quality jobs will increase wages as a % of GDP and also reduce transfer payment bills for the government.