PCE breakdown. Smaller annual increases in July is something people have noticed. Inflation did not improve in August, the BEA updated methodology and applied those revisions retrospectively this morning, resulting in both the annual headline and core changes being three tenths lower. Below, we can see despite the lower number today, inflation nudged higher in August, and more crucially, unlike CPI, where core is moving lower, the core PCE is still pushing upwards.

The Productivity Boom Is Real. The AI Payoff Isn’t… Yet. Productivity has been at the center of the AI narrative, with nonfarm output per hour showing a clear step-up from its pre-pandemic trend. If this were already a broad micro-level productivity story driven by AI, however, we would expect to see a commensurate acceleration in utilization-adjusted TFP, which more closely captures the technology and efficiency side of productivity growth. Since 2023, nonfarm productivity has accelerated 1.3pp, but utilization-adjusted TFP has yet to show a statistically significant shift. Instead, capital deepening stands out, adding +0.7pp. For now, the productivity boom looks more like the AI investment cycle than the AI payoff. Credit to @BobEUnlimited for being one of the earlier recognizers of this.