Nonfarm Payrolls Up Next

PCE does little to move rates markets. PCE data can produce significant market swings, but today was the exception. Personal consumption and expenditures data was broadly in line with expectations and gave rates little direction. August, a month that saw rates climb ~30+bps at one point, ended on a soft note as the 2-year and 10-year UST yields ticked modestly lower to 4.86% and 4.11%, respectively.

PCE breakdown. Today’s PCE data made for the smallest back-to-back increases since late 2020. Both headline and core MoM PCE were 0.2% in July, equivalent to a 2.43% rate on an annualized basis. Meanwhile, headline YoY was 3.3% while core YoY came in at 4.2%. PCE is the Fed’s preferred inflation gauge, and while today’s data doesn’t signal a substantial acceleration in inflation, it doesn’t signal the “all clear” either. 

Jobs report awaits. Nonfarm payrolls are expected to decline to 170k from 187k in July, while the unemployment rate is expected to remain historically low at 3.5%. Average hourly earnings have remained high, and forecasts call for wages to rise by 4.3% on a YoY basis. The labor market has proven to be surprisingly strong in the wake of the Fed’s historic tightening cycle, and the FOMC will need to see significant weakening before they loosen monetary policy.