EU inflation & US Core PCE in focus: Is further economic turbulence looming?

The unemployment rate in Germany as of September 2024

The largest economy in the Eurozone, Germany, announces its September unemployment rate figures today. More than ever, the unemployment rate is a key indicator of whether the economy still has sticky spots that need to cool.

In August 2024, Germany's seasonally adjusted unemployment rate held steady at 6.0%, well above the three-year high, both in line with market estimates and unchanged from the previous month. The number of jobless people increased by 2,000 to 2.801 million, which is much less than the 16,000 increase that was predicted. August had 699,000 job openings, a 72,000 decrease from the same month last year, suggesting a decline in the demand for labor. Unemployment increased by 63,000 to 2.872 million on an unadjusted basis, the highest level in three and a half years.

A further increase from these levels could fuel ongoing fears about a downturn in economic activity. This increase indicates weakness in the labor market and may be a reflection of the ongoing difficulties in Germany's industrial and export industries.

 

European Union: Anticipated Consumer Inflation (September 2024)

A key indicator of inflationary pressures that the European Central Bank (ECB) keeps an eye on is the Consumer Inflation Expectation for the Eurozone in September. Future salary negotiations, consumer purchasing, and price-setting practices may all be impacted by inflation forecasts.

Consumer Inflation Expectation for August stayed at 11.3 points, indicating that consumers' concerns regarding the continuous price hikes for necessities—food and energy in particular—remain unchanged.

A climb above might make it more difficult for the ECB to decide on future policy measures since persistently high inflation expectations could indicate that inflation is solidifying, which could breed uncertainty and force further monetary tightening.

Core PCE Price Index for the United States, August 2024

The Federal Reserve's favored inflation indicator, the Core Personal Consumption Expenditures (PCE) Price Index for August, is one of the most carefully monitored inflation indices in the United States.

In July 2024, the Federal Reserve's favored indicator of underlying inflation, the core PCE price index, continued to rise annually at a rate of 2.6% for a third consecutive month. From 1960 to 2024, the US Core PCE Price Index Annual Change averaged 3.24 percent; it peaked in February 1975 at 10.22 percent and fell to a record low of 0.63 percent in July 2009. The predicted 2.7% is still above the 2% objective set by the Federal Reserve, and it is expected to be higher than it was last month.

The Core PCE Price Index has somewhat eased, suggesting that inflationary pressures in the United States may be beginning to decrease, though not rapidly enough to calm down Federal Reserve worries. The anticipation is that today's report would indicate a number that is in line with forecasts, following the Fed's aggressive rate hikes to fight inflation. The rate was recently lowered by 50 basis points.

The equity markets would probably applaud the Fed's decision to keep cutting rates if inflation keeps slowing down. This is especially true for industries like consumer discretionary and technology that are sensitive to fluctuations in interest rates. When hopes for more aggressive rate hikes decline, bond markets might also see some respite.

The Fed may feel pushed to retain a hawkish attitude, though, if the market thinks inflation is still too high for comfort. This could result in increased volatility in the upcoming weeks.

Personal Spending in the United States (August 2024)

In July 2024, the Federal Reserve's favored indicator of underlying inflation, the core PCE price index, continued to rise annually at a rate of 2.6% for a third consecutive month. From 1960 to 2024, the US Core PCE Price Index Annual Change averaged 3.24 percent; it peaked in February 1975 at 10.22 percent and fell to a record low of 0.63 percent in July 2009.

Despite rising inflation and borrowing prices, consumer spending has remained mostly unchanged; the modest gain in July may indicate that consumers are growing more optimistic throughout the period as economic uncertainty lasts. High interest rates have increased the cost of borrowing, yet there are indications that consumer spending has not been significantly impacted.

Future patterns in inflation can also be inferred from the data on personal spending. Inflation can be maintained at high levels by robust consumer demand, which makes it more difficult for the Fed to rein in price growth. On the other hand, a sizable reduction in expenditure may lessen inflationary pressures and reduce the need for additional rate hikes by the Fed.