— This is the script of CNBC's financial news report for China's CCTV on December 2, 2022.
Federal Reserve Chairman Jerome Powell has stressed that core personal consumption expenditures (PCE) inflation, which omits the food and energy inflation components, is an indicator that he believes more accurately reflects the direction of inflation. Compared to the Consumer Price Index, which measures changes in the price of goods, that personal consumption expenditure data then reflects changes in consumer behavior. And according to the latest data released by the U.S. Department of Commerce, this indicator has shown a slowdown in growth.
PCE, excluding volatile food and energy prices, increased 5% in October, a slowdown from 5.2% in September, in line with market expectations. The overall PCE increased by 6%, still exceeding the Federal Reserve's 2% target. In fact, this trend is similar to last month's consumer price index, which showed that inflation is starting to moderate, but is still too high.
According to some analysts, the strong momentum of consumer spending will make it more difficult for the Fed to achieve a "soft landing," which is a slowdown in economic growth that reduces inflation without causing a recession.
Wells Fargo, Managing Director and Chief Economist
"It'll seems like the economy continues to expand right now, I guess the thing that I worry about is you still have a bunch of Fed previous tightening that's already in the pipeline, and probably more coming as chair Powell indicated yesterday."
In addition, there are signs that consumer spending may have reached its limit. In August, September, and October, household spending grew faster than income, suggesting more people are taking out loans or taking on credit card debt to meet their expenses.
And the U.S. Commerce Department reported that the personal savings rate was 2.3% in October, the lowest level since July 2005, when the savings rate was 2.1%.
It is worthwhile noting that from last Friday to this Monday is the time of the year for Americans, the annual shopping spree, and the data indicates that more people are using the buy now pay later service, with Afterpay experiencing a 120% increase in transaction volume. This year, many consumers will be relying on borrowing, according to the CEO of U.S. retail giant Target Corp.
All of this could send U.S. household debt growing at its fastest annual pace since 2008. In addition, tonight's non-farm payrolls data is the focus of market attention. According to a Reuters poll, economists expect 200,000 new jobs to be added in November, with average wages rising 4.6% over the past year and the unemployment rate remaining at 3.7%.
In its monetary policy, the Fed has sought to achieve both price stability and full employment. It is, however, concerned that labor shortages may cause wages to rise too quickly, making it more difficult for the Fed to control high inflation. Thus, the government hopes to reduce demand and increase unemployment in order to cool the economy. It has also been argued by some analysts that this is a pursuit of the former at the expense of the latter.
Northern Trust, Chief Investment Strategist
"I think that's the biggest challenge the Fed has is to really soften the labor market."
In addition, as the market awaits the release of Friday's jobs data, we saw overnight that stocks in the U.S. have pulled back from the sharp gains they made in the previous session. The Dow Jones Industrial Average and S&P 500 closed lower.