Nick Ramell
MANHATTAN (CN) — Two of the three major stock indexes rose this week as investors headed into summer with improving consumer sentiment and inflation data.
As of Friday’s close, the Dow Jones Industrial Average was down 28 points for the week, the S&P 500 was down 4 points, while the Nasdaq was up 43 points.
On Friday, the Bureau of Economic Analysis’ personal consumption expenditures index, the Federal Reserve’s most closely watched inflation gauge, showed prices were falling.
The PCE index fell about 0.1% in May, mainly due to a 0.4% drop in commodity prices, while services prices rose 0.2%. Core inflation, which excludes food and energy prices, rose 0.1%.
“Resilient labour markets are driving solid growth in personal income, and with prices steady in May, real disposable income is expanding at a steady pace,” wrote Michael Pearce of Oxford Economics, adding that “resilient labour markets are driving solid growth in personal income.”
People’s wallets continue to be bulging, helping to keep inflation in check: Personal income rose 0.5%, up from a 0.3% increase from April and beating consensus expectations.
“I don’t think inflation is going to magically bounce back to 2 percent and stay there,” said Peter Boockvar, chief investment officer at Blakely Advisory Group, noting that the Fed’s inflation target is probably unattainable. “Inflation volatility is going to continue for the next few years.”
Main Street is still feeling the pain of inflation, reflected in three surveys conducted this week.
The University of Michigan’s monthly survey of consumer sentiment showed a slight decline in confidence, with the index dropping to 68.2 from 69.1 in May. The university’s “current situation” index also fell to 65.9 from 69.6, while its expectations index rose about one point.
“The past two years of surveys have made it clear that consumers distinguish between their experience of high price levels and their view of the overall inflation rate,” said Joanne Su, the survey’s chief economist, adding that while consumers recognize that inflation has eased significantly, they still feel the pain of high prices.
On Tuesday, the Conference Board released its own index of consumer confidence, which rose slightly to 141.5 in June from 140.8 in May, while the board’s index of expectations fell slightly by almost the same amount.
“Consumers expressed mixed feelings this month,” Dana Peterson, the committee’s chief economist, said in a statement. He noted that it marked the second consecutive month that consumers were less pessimistic about future labor market conditions. “However, expectations for both future income and business conditions weakened, dragging down the overall expectations index,” he said.
The U.S. Chamber of Commerce announced Wednesday that its Small Business Index reached 69.5, its highest score since the beginning of 2020. Nearly three in four small business owners said they expect revenue to increase next year, the highest level in the survey since 2017.
“Main Street employers are demonstrating confidence and resilience even as inflation continues to rise,” said Tom Sullivan, the chamber’s vice president for small business policy. He added that “comfort with cash flow remains high, which is a key reason small business owners are confident in their ability to meet customer demand and solve the challenges facing their communities.”
