INFLATION
In April, the Personal Consumption Expenditure deflator (PCE) rose 0.3% and 2.7% year-over-year. Core PCE, the Fed’s preferred measure of inflation, rose 0.2% for the month and 2.8% over the last twelve months.
Our Take: Year-over -year core PCE at 2.7% is the lowest print since March 2021, giving rise to some hope that inflation is starting to move toward the Fed’s 2% target. However, annualizing the last six months core PCE shows inflation at 3.2%, the highest this measure has been since last July. This really comes as no surprise given the reignition of inflation earlier this year. The April inflation data represents an improvement, but Fed sentiment will not change unless there are more reports like this one in the coming months.
PERSONAL INCOME AND SPENDING
Personal income rose 0.3% in April while spending increased 0.2%. Real personal spending (adjusted for inflation) fell 0.1%.
Our Take: For the past few years, spending has outstripped income on a consistent basis. This has led to today’s record credit card debt and low savings rate. While the spending has driven economic growth, the party cannot go on forever. A slowdown in spending would help the fight against inflation, but at the expense of growth.
MUNICIPALS
Moody’s Investors Service upgraded Maine’s credit rating from Aa2 to Aa1. Moody’s cited the state’s “structurally sound budget” along with “sustained financial improvements including a large increase in reserves and solid pension contributions practices” as reasons for the upgrade.
Our Take: In recent years, Maine lawmakers and Governor Janet Mills have worked to produce balanced budgets and increase the state’s rainy-day fund balance. In addition, Maine’s economy has grown. Taken together, the state’s financial strength has improved.