GDP And PCE Data This Week: Don’t Forget About Inflation Expectations (2024)

The Q2 ’24 Atlanta GDP Nowcast is projecting mid 3% GDP for the 2nd quarter, 2024.

The scheduled GDP release this Thursday, May 30, ’24, is the 2nd look at Q1 ’24 GDP and the 2nd estimate is expecting 1.3% – 1.5%. The deflator, which is part of the GDP release and measures goods and services prices, is expected at +3.1% per the Briefing.com calendar.

At a recent JPMorgan lunch in Oak Brook, Illinois, members of the fixed-income team were on hand, and given all of the inflation measurements that are populating the blogs and social media, I had to ask the team what – in their opinion – was or is the most important inflation measure(s) to be followed, and their immediate response was Core CPI and Core PCE data.

Friday morning, we get Core PCE data for April ’24, and overall April PCE data is expected at +0.2%, while the April Core PCE data is expected at +0.3%.

Don’t forget about “inflation expectations”

One thing you learn studying money and banking and economics for that matter, is that while so much financial media attention is rooted in “inflation data” (actual inflation, which is important for sure), the more telling aspect of inflation is “inflation expectations” and one of only two measures that tracks this critical measurement, is the University of Michigan Consumer Sentiment Data, which was last released on Friday, May 24, 2024.

This chart, cut-and-pasted from Briefing.com, shows the last two bullet points under “Key Factors” that both year-ahead and long-run inflation expectations have seen inflation expectations revised lower. Note in particular that last bullet point under “Key Factors”: that data shows the long-run inflation expectations, both pre- and post-Covid, and note the data.

For Friday’s April PCE data, any number hotter than normal will likely send Treasury yields higher and stocks lower, and vice versa, if the data starts to come in lower, given inflation expectations.

However, without any weakness in economic data, particularly the labor market, it’s an easy argument to make (and many make it) that the Core CPI and Core PCE inflation data will remain elevated.

It really is a remarkable US economy and US stock market on this Memorial Day, May 27th, 2024.

Summary/conclusion

Inflation data is now as closely watched as labor market data, and for good reason. Technicians this blog follows keep noting the rather “iffy” technical support around crude oil, and despite what the inflation data might show this week, if crude oil does drop below $70, it would likely lead to a rally in Treasuries and help out the inflation data in May and June ’24.

Now the opposite applies too: lower-than-expected inflation data this week would be negated if crude oil spiked over $90, as Treasury yields would rise and the S&P 500 would likely correct or stagnate.

The point is crude oil still matters, and it’s often ignored, but it ultimately impacts Treasuries and thus stock prices and impacts inflation metrics.

On this Memorial Day, 2024, as American citizens, we are blessed with a $27 trillion US economy, a $46 trillion stock market, and a $51 trillion US bond market. Today, we are living in the greatest wealth-creation machine in the history of civilization, and the Americans we memorialize today for their service and sacrifice, truly paid the ultimate price.

None of this is a prediction about inflation data. We’ll have to wait and see what the data holds this week. Past performance is no guarantee of future results. Investing can involve the loss of principal even for short periods of time. Readers should gauge their own comfort with market volatility and adjust their portfolios accordingly.

Thanks for reading.

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Brian Gilmartin, CFA