Recently, the chatter around inflationary indexes has become louder and more pronounced. With the government shouting, “All is well!” people have been turning a blind eye to the truth. 

When you look at current indexes like the PCE and compare them with consumer’s current savings and spending habits, you see a clear picture of why we should be more worried. 

There's a lot to unpack here, so let’s dive in and peek behind the curtains of the US Economy and how it affects you.

Let’s Review: What is the PCE Again? 

To start, we're diving deep into the PCE - Personal Consumption Expenditure. In lay terms, the PCE measures the prices that residents of the United States (or those purchasing on their behalf) pay for goods and services. 

Now, while this might seem like an overload of acronyms and financial jargon, it's essential to understand these terms, primarily because they provide insights into consumer behaviors and economic health.

Headline vs. Core Inflation: Understanding the Distinction

Within the world of inflationary metrics, two terms stand out: "headline" and "core." The headline is an all-encompassing measure, while the core strips out certain volatile elements like food and energy. 

The distinction is crucial, especially considering the Federal Reserve prefers to keep its eye on the core. This preference has given rise to a "sticky core" or "super core" (as some refer to it), which means housing is also removed from the equation. So, we're looking at everything, excluding housing, energy, and food.

Consumer Spending & Saving Habits: A Deeper Dive

Spending

Here’s where it gets dicey. Beyond the inflationary indexes, an intriguing narrative unfolds around consumer spending habits. 

A notable concern is the recent surge in credit card debt. Over the past two years, we've witnessed an unprecedented climb in credit card debt, breaking the trillion-dollar ceiling. Even more alarming is that half of this debt is not being serviced monthly, and the average credit card interest rate hovering around 23% paints a bleak picture.

Saving

One of the most telling signs of inflation and economic instability is mirrored in the country's savings rate. A drastically reduced savings rate indicates that the average American isn't just dealing with rising expenses but is also struggling to keep up with inflating prices. 

When inflation soars, the purchasing power of money decreases. Consequently, people are compelled to dig into their savings to maintain their standard of living. 

This dip in the savings rate, from a record 33.8% to a mere 3.5%, is not just a reflection of increased consumer spending; it's a distress signal. It suggests that many are depleting their savings to cover basic necessities, which raises alarms about the economy's underlying health. 

Bottom Line: The Real State of the Economy

So what does this mean? Despite the various looming financial clouds, many, including the current administration, claim the economy is robust and thriving. 

However, the metrics suggest a different story. Manufacturing is not at its healthiest, which translates to fewer products being produced, leading to inflated prices for lesser goods.

The landscape of inflation and spending in the United States is multi-dimensional and offers valuable insights into broader economic trends. 

Whether it's understanding the nuances of inflationary indexes or deciphering the dramatic shifts in consumer behavior, staying informed and prepared is essential. Well-informed consumers can make better financial decisions in sunny and rainy economic weather.