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What Does the Fed’s Preferred PCE Data Indicate?

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PCE data

The US Commerce Department released personal consumption expenditures (or PCE) data on March 28. Core PCE, which excludes volatile food and energy costs, rose by 0.1% month-over-month and by 1.7% year-over-year in February.

The PCE Index is the Federal Reserve’s preferred inflation measure and has important policy implications. The latest data shows that the inflation is running below the Fed’s 2.0% target. So, the Fed may not be in a hurry to normalize interest rates in the April 26–27 meeting.

Consumer spending rose marginally by 0.1% as households cut back on goods purchases after gaining 0.1% in January. Consumer spending accounts for more than two-thirds of US economic activity.

The retail and consumer sectors took positive cues following the personal spending report. The SPDR S&P Retail ETF (XRT), the Consumer Staples Select Sector SPDR ETF (XLP), and the Consumer Discretionary Select Sector SPDR ETF (XLY) rose slightly.

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Pending home sales data

According to the National Association of Realtors, pending home sales in February 2016 rose by 3.5% from January and by 5.1% from a year ago. Pending home sale data offers insight of upcoming sales activity. The pending sale means that the contract of sale has been signed, but the transaction hasn’t closed.

Pending home sales data impact housing-related stocks such as Lennar Corporation (LEN), Toll Brothers (TOL), DR Horton (DHI), and PulteGroup (PHM). It also impacts exchange-traded funds such as the SPDR S&P Homebuilders ETF (XHB) and the iShares US Home Construction ETF (ITB).

Consumer Confidence Index

The Conference Board’s index of consumer confidence rose to 96.2 in March from 94.0 in February. Consumer confidence was up due to a rebound in the stock market and growth in the labor market, offsetting the impact of higher gasoline prices in recent weeks.

In the next article, we will look at the developments in the high-yield primary market issuance.

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