SAN FRANCISCO -- The March
released this morning confirm that spending was (surprise) still on a tear as the first quarter ended. The broader
personal consumption expenditure
series -- the retail numbers do include
Internet sales but don't include the consumption of services and therefore capture less than half of the spending that goes on in any given month; the PCE figure
accounts for roughly 68% of GDP -- is now likely to turn in a whopping 8.1% year-on-year increase for the January-March period. That marks a four-tenths acceleration on its fourth-quarter rate as well as the fastest pace of consumption in 11 years.
Meantime the core (excluding food and energy)
index might -- might -- be rolling over. Its 0.1% March
increase ended up producing a 1.2% year-on-year gain, which marks both a two-tenths acceleration on its February pace and a four-tenths increase on its January rate (which went down as the slowest since June 1998). The core intermediate and core crude goods indices continue to accelerate -- the former is rising at a 3.1% rate, up 4.9 percentage points from its February 1999 trough; the latter is rising at a 16.3% rate, up 32.3 points from its December 1998 low -- and further signs of seep-through to the finished goods level will work against the notion that higher input prices are purely an energy thing (and one that's near its end).
Long story short? (a) Growth's still way fundamentally strong. (b) Slowly and from low bases, the key price indices are growing less kind.
The (paraphrased) thinking below comes from a friend of a friend.
If it's economic fundamentals that are moving the yield curve, what is it telling you? It's really very simple: One of three things (or a combination). It is inverting and the bond's rallying as a recession looms; it is inverting and the bond's rallying as a permanent productivity number in excess of anything we have experienced before is now in place and subsequently inflation is a story as that experienced in the 1950s; or it is inverting and the bond's rallying as the risk premiums for bonds have decreased considerably as the Fed demonstrates strategist adherence to the Taylor Rule.
If it isn't economic fundamentals, then one should short the hell out of Treasuries and get ready for the market to come to its senses and lose the 100-basis-point gain in the bond that has occurred since this silliness has started.
If one trusts the yield curve, one should buy bonds even now, for as the majority of good folks are distracted with sexy spiels, a massive fundamental development will confound and shock almost all.
So What'cha Want
The market's looking for a two-tenths core CPI print tomorrow.
The core PPI printed as expected today. For what it's worth? The last four times it's come in as expected (or kinder), the CPI's followed suit: It ended up printing either as expected (twice) or a tenth lower (twice).