• The PCE inflation rate, the FOMC’s preferred measure of inflation, slowed sharply in June, echoing the CPI.
• Consumer spending rose faster than income in June as consumers dug into savings.
• PNC expects a shallow recession to start in late-2023 or early 2024.

The consumer price inflation rate (PCED), the FOMC’s preferred measure of inflation, slowed sharply in June, echoing the better-known CPI, its “fraternal twin.” The headline PCED rose 0.2% in June and the year-over-year rise fell sharply to 3.0% (the same as the CPI).  The core PCED (excluding food and energy) also rose by 0.2% in June and the year-over-year rise was down to 4.1% (even lower than the CPI’s 4.8% rise). This is welcome news to the FOMC and the financial markets.

Personal income rose 0.3% in June and workers’ compensation rose 0.5% reflecting the rise in workers and their wages last month. Disposable (after-tax income) rose 0.3% in June. Consumer spending (PCE) rose a strong 0.5% in June with spending on both goods and services moving higher. With spending rising faster than income, consumers dug into their savings with the June savings rate falling to 4.3% from 4.6% in May.  Real (inflation-adjusted) PCE rose a strong 0.4% in June, capping off the second quarter’s rise in real PCE of 1.6% at an annual rate. 

PNC expects a shallow recession to start in late 2023 or early 2024 as the impact of higher interest rates continues to work its way through the economy. Also, the resumption of student loan principal and interest rate payments starting in October (estimated between an average of $350-$400 per month) for close to 27 million borrowers and the cancellation by the SCOTUS of Biden’s $20K debt cancellation are both moderate negatives for consumer spending in the final holiday quarter of this year and in 2024. That is built into our forecast for a shallow recession.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance, and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.