On Friday, December 5th, the US Bureau of Economic Analysis (BEA) released the “Personal Income and Outlays, September 2025” report. The preferred inflation indicator by the Federal Reserve unexpectedly cooled in September, while Americans’ income growth exceeded economists’ expectations. The release of September data was delayed due to the earlier government shutdown.
Additionally, the University of Michigan’s December Consumer Sentiment Index showed that consumers have a slightly optimistic outlook on the US economy and inflation for the new year.
The core PCE, which excludes volatile food and energy prices, is the Federal Reserve’s preferred inflation indicator. The overall US core Personal Consumption Expenditures (PCE) price index in September increased by 0.2% monthly and 2.8% annually, meeting expectations for the monthly rate but slightly below market expectations for the annual rate. In August, the annual rate was 2.9%, which economists had predicted to remain unchanged.
In September, the overall PCE increased by 0.3% monthly and 2.8% annually, a slight increase from the previous month’s 2.7% and in line with market expectations. The Consumer Price Index (CPI) rose by 0.3% in September, lower than the revised 0.5% increase in August.
The Federal Reserve (Fed), also known as the Federal Reserve, places more emphasis on Personal Consumption Expenditures (PCE) than the Consumer Price Index (CPI). PCE inflation rate is updated more frequently, covers a broader scope, and encompasses both urban and rural households.
Meanwhile, PCE data also showed a 0.4% increase in personal income, higher than the market’s general expectation of 0.3%. Personal spending rose by 0.3%, meeting expectations.
Due to the federal government shutdown, data collection and reporting operations were suspended, delaying the release of the BEA’s September Personal Consumption Expenditures report.
The University of Michigan’s preliminary December Consumer Confidence Index rose slightly to 53.3%, surpassing the expected 52%, compared to November’s 51%, marking the first increase in five months.
Consumer expectations for inflation over the next year decreased from 4.5% to 4.1%, reaching the lowest level since January. Expectations for five-year inflation fell from 3.4% to 3.2%.
This may be good news for the US central bank.
Consumer evaluations of the current economic situation fell by 0.8 percentage points to 51.1%, while their expectations surged by nearly 8 percentage points to 55%.
Previously, consumer spending had steadily increased for three consecutive months. Economists attribute this mainly to the stock market’s rise and significant wealth growth for high-income households. However, for middle- and low-income groups, a weak labor market and increasing life pressures have limited their consumption, leading to what is known as a “K-shaped economy.”
Goldman Sachs predicted in a report this week that due to weak job growth and cuts in government aid programs such as Medicaid and SNAP, spending by low-income groups will be suppressed in 2026.
(Reference: English Epoch Times)