US economic data will be key between now and the middle of December after the Fed’s statement on Wednesday suggested that as long as we don’t see a deterioration in the labour market data and inflation expectations, it will look to raise rates in December. With that in mind, few economic indicators will be more important than those that we’ll see today, particularly on the inflation front.
The Fed’s preferred measure of inflation – core personal consumption expenditure price index – is expected to show prices rising by 0.2% in September, the highest rise since April. Alone, this is not overly significant as it could just be a temporary spike in prices, but if this continues towards the end of the year it may suggest that some inflationary pressures are finally beginning to return.
Possibly of more importance that the inflation reading is the employment cost index release and personal income and spending figures. The Fed has acknowledged and is comfortable with the fact that inflation pressures are likely to remain subdued for now, as long as inflation is expected to return to 2% in the medium term. With that in mind, measures such as employment costs, income and spending are arguably the more important releases that we should be paying attention to.
With that in mind, the employment cost index is expected to rise to 0.6% in the third quarter after falling quite dramatically to 0.2% in the previous quarter. A rise back to this level after the slump in the second quarter would be welcomed by the Fed as it hopes to be able to justify a tightening come December. Hopefully higher wage growth will follow in the coming quarter with this having remained somewhat suppressed until now.
Higher spending figures would also be welcomed after a year in which consumers have seen a significant rise in disposable income but appeared reluctant to sell it. A discouraged consumer does not bode well for an economy struggling for inflationary pressures. If we can see the return of the consumer going forward then the inflationary pressures should follow. Moreover, this also aids the unemployment situation, although the Fed appears fairly comfortable with this at 5.1%.
The S&P is expected to open 1 point higher, the Dow 4 points lower and the Nasdaq 1 point higher.
For a look at all of today’s economic events, check out our economic calendar.