MANHATTAN (CN) — Two of the three major stock market indices picked up gains this week, as investors kicked off the summer with positive consumer sentiment and inflation data.
The close of trading Friday saw the Dow Jones Industrial Average lose 28 points for the week and the S&P 500 lost four points, while the Nasdaq managed to net 43 points.
On Friday, the inflation metric most closely watched by the Federal Reserve — the personal consumption expenditures index by the U.S. Bureau of Economic Analysis — showed that prices are coming down.
The PCE index fell by about 0.1%, driven mostly by the 0.4% fall in goods prices, while services prices gained 0.2% in May. Core inflation in the index, which excludes food and energy prices, increased by 0.1%.
“The resilient labor market is driving solid gains in personal incomes, and with prices flat in May, real disposable incomes are expanding at a decent pace,” wrote Michael Pearce at Oxford Economics, adding that “resilient labor market is driving solid gains in personal incomes.”
People’s pocketbooks continue to grow, which has helped counteract inflation. Personal incomes increased by 0.5%, compounding the 0.3% increase from April and better than the consensus.
“I do not believe that we’re magically going back to 2% inflation and staying there,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group, noting the Fed’s target inflationary rate is probably out of reach. “Inflation volatility is here to stay in the coming years.”
Main Street is still feeling the pain of inflation, which was reflected in a trio of surveys this week.
The University of Michigan’s monthly survey on consumer sentiment showed a slight dip in confidence, with the index coming in at 68.2 compared with 69.1 in May. The university’s “current conditions” index also slipped from 69.6 to 65.9, while the expectations index picked up about a single point.
“Over the past two years, our surveys clearly reveal that consumers distinguish between their experiences with high price levels and their views of overall inflation rates,” said survey Chief Economist Joanne Hsu. She added consumers realized inflation has softened substantially but still feel the pinch of high prices.
On Tuesday, the Conference Board released its own consumer confidence index, which rose slightly to 141.5 for June from 140.8 in May. On the flip side, though, the board’s expectations index fell by about the same slight margin.
“Consumers expressed mixed feelings this month,” Dana Peterson, the chief economist at the board, said in a statement. She noted this is the second consecutive month where consumers were less pessimistic about future labor market conditions. “However, their expectations for both future income and business conditions weakened, weighing down the overall expectations index,” she said.
On Wednesday, the U.S. Chamber of Commerce reported its small business index hit 69.5, its highest score since early 2020. About three in four small business owners said they expect their revenue to increase next year, another high mark that the survey hasn’t seen since 2017.
“Main Street employers are showing confidence and resiliency in the face of persistent inflation,” said Tom Sullivan, the chamber’s vice president of small business policy. He added that “comfort with cash flow remains high and is a key reason why small business owners are bullish about their ability to meet customer demand and solve challenges facing their communities.”
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