Inflation rose in October roughly in line with forecasts, sending a signal that price increases may at least be stabilizing, the Commerce Department said on Thursday.
The price index for core personal consumer spending, a gauge that excludes food and energy and is favored by the Federal Reserve, rose 0.2 percent for the month and was 5 percent higher than a year ago. The monthly gain was below the Dow Jones estimate of 0.3%, while the annual gain was in line.
Earnings also represented a slowdown from September, when it saw a monthly gain of 0.5% and a year-over-year gain of 5.2%.
Including food and energy, core PCE rose 0.3% month-over-month and 6% year-over-year. The monthly increase was the same as in September, while the annual increase was a step down from the 6.3% pace.
The department also reported that personal income rose 0.7 percent for the month, well above the 0.4 percent expected, and spending rose 0.8 percent, as expected.
In another key report, a widely followed gauge of manufacturing activity hit its lowest reading in two and a half years in November.
The ISM manufacturing index registered a reading of 49%, representing the level of businesses reporting expansion for the period. The reading was 1.2 percentage points below October and the lowest since May 2020, in the early days of the Covid pandemic.
Declines in backlogs and imports were the index’s biggest detractors. The closely watched price index fell 3.6 points to 43%, indicating that inflation is easing, while the employment index also fell 1.6 points to 48.4% in contraction territory.
Markets were mostly lower after the morning data, with the Dow Jones Industrial Average down more than 250 points in early trade, while the S&P 500 and Nasdaq Composite posted smaller losses.
“This morning’s data was a bullish report as it showed core inflation continuing to ease,” said Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance. “If inflation continues to decline, then markets will continue to rise as investors conclude that the Fed will not need to raise rates as high nor keep them high for as long as previously expected.”
Although the Federal Reserve takes a wide range of measures to measure inflation, it prefers the PCE index because it takes into account changes in consumer behavior, such as substituting cheaper goods for more expensive goods. This is different from the consumer price index, which is a crude measure of price changes.
Policymakers view core inflation as a more reliable measure because food and energy prices tend to fluctuate more than other items.
In other economic news Thursday, the Labor Department said weekly jobless claims totaled 225,000, down 16,000 from the previous week and below the forecast of 235,000.
Another jobs report from relocation firm Challenger, Gray & Christmas showed that planned layoffs rose 127% month over month in November and were up 417% from a year ago. Even with the huge jump, the firm noted that the year-to-date layoff total was the second-lowest ever in a data set that dates back to 1993.
The data comes at a key time for the Fed, which is in the midst of a campaign to raise interest rates in an attempt to reduce inflation.
In a speech on Wednesday, Chairman Jerome Powell said he saw some signs that price increases were easing, but added that he needed to see more consistent evidence before the central bank changed its policy. He indicated, however, that he thought rate hikes could begin to taper off, perhaps as early as December.
“The truth is that the path forward for inflation remains very uncertain,” Powell said.
PCE data showed the numbers remained volatile. Goods inflation rose 0.3% for the month after falling in the previous three months, while services inflation rose 0.4%, down from two consecutive increases of 0.6%. Economists are looking for a return to a more services-based economy after excessive demand for goods played a major role in the spike in inflation in 2021.
Food inflation increased by 0.4%, while prices of energy goods and services rose by 2.5%.
The Federal Reserve is watching the labor market closely for more signs of cooling inflation.
Jobless claims trended up slightly, and the level of ongoing claims increased by 57,000 to 1.61 million, the highest level since February.