US Data Revisions: A Brighter Inflation Picture, but Underlying Pressures Persist

US statisticians have revised five years of economic data, with household incomes now estimated to have been higher than previously reported and consumer spending slightly lower.

In August, real disposable income per capita fell by 0.1% month on month but rose by 1.1% year on year. Real consumer spending increased by 0.5% on the month and 2.3% on the year.

The most significant revision was to interest income, which was raised by $460 billion, from $2.04 trillion to $2.5 trillion. This does not represent additional money in Americans’ pockets; it reflects changes to the statistical methodology. The revision also lifted the estimated household saving rate to 4.1%.

Inflation figures were revised as well. A lower estimate of financial services costs reduced the PCE price index by almost 0.4 percentage points. Headline PCE inflation rose by 0.3% in August and stood at 3.4% year on year, while annual core PCE inflation eased from 3.3% to 3.0%.

Markets welcomed the softer inflation figures, although consumer demand remains robust: nominal spending rose by 0.9% on the month, while real spending increased by 0.6%.

The revisions leave the Federal Reserve in a difficult position. The decline in annual core PCE inflation is encouraging, but it largely reflects methodological changes rather than a genuine easing of underlying price pressures. With consumer spending still strong, the Fed will need further evidence of sustained disinflation before adjusting its monetary policy stance.

The Treasury market, however, was less convinced. Yields reached fresh highs, with the 30-year Treasury yield at 5.676%, the 10-year at 5.322% and the five-year at 5.098%.

Rising yields are adding to the pressure on financial markets. Higher US Treasury yields tend to support the dollar, increase borrowing costs and make non-yielding assets, particularly gold, less attractive. They also tighten financial conditions for equities, especially if yields continue to climb.

The bottom line: the revised figures paint a more favourable statistical picture, but the underlying fundamentals have changed little. Consumer demand remains strong, inflation is elevated, and the Treasury market continues to price in significant inflation risks.Trade smart with Headway