Modest GDP and Consumer Spending Growth: January 27 – 31

2019 GDP growth was its most sluggish since 2016. Here are the five things we learned from U.S. economic data released during the week ending January 31.

#1Q4 GDP growth matched that of Q3. The Bureau of Economic Analysis’ first estimate of fourth-quarter 2019 Gross Domestic Product (GDP) finds the U.S. economy expanded at a seasonally adjusted annualized rate of 2.1 percent, matching Q3’s growth rate and just above Q2’s 2.0 percent advance. Positive contributors to Q4 GDP were, in descending order, net exports (adding 132-basis points to growth), consumption (+120-basis points), government expenditures (+47-basis points), and fixed residential investment (+21-basis points). Dragging down business activity, however, were the change in private inventories (costing 109-basis points) and fixed nonresidential investment (-1-basis point). The U.S. economy expanded 2.3 percent for all of 2019, down from 2018’s 2.9 percent advance. The 2019’s slower growth rate was the result of smaller gains in fixed nonresidential investment and consumption, along with declining exports. The BEA will revise its Q4 GDP estimate twice over the next two months.GDP Growth--2012 to 2019

#2Personal spending eased up in December. The Bureau of Economic Analysis reports that real personal consumption expenditures (PCE) inched up 0.1 percent on a seasonally adjusted basis during the month following a 0.3 percent bump in November. Spending on both goods and services grew 0.1 percent, with durable goods spending slowing 0.3 percent and nondurables expenditures increasing 0.2 percent. Nominal (not inflation-adjusted) PCE rose 0.3 percent during the month, funded by 0.2 percent gains in both nominal personal income and disposable income. Real disposable income dipped 0.1 percent. The savings rate shed 2/10ths of a percentage point to +7.6 percent. Over the past year, real PCE has risen 3.3 percent, funded by a 2.0 percent bounce in real disposable income.

#3The Fed maintained the status quo. The policy statement following this past week’s Federal Open Market Committee meeting nearly matched that of December. This includes assertions of a “strong” labor market and an economy “rising at a moderate rate.” The most recent statement shifts to the word “moderate” to describe household spending (it was previously “strong) and continued to describe both business investment and exports as “weak.” Nevertheless, the FOMC voted without dissent to keep the fed funds target rate at a range between 1.50 and 1.75 percent, as expected.

#4Consumers started 2020 in a better mood. The Conference Board’s Consumer Confidence Index added 3.4 points in January to a seasonally adjusted 131.6 (1985=100). The current conditions index rose by 4.8 points to 175.3 while the expectations measure added 2.5 points to 102.5. 40.8 percent of survey respondents saw current economic conditions as “good” versus a mere 10.4 percent viewing them as “bad.” Further, 49.0 percent of consumers reported that jobs were “plentiful,” well above the 11.6 percent who said jobs were “hard to get.” The press release linked the improved sentiment to “a more positive assessment of the current job market and increased optimism about future job prospects.”

The January reading from the University of Michigan’s Index of Consumer Sentiment of 99.8 was a half-point ahead of that from December and 8.6 points above the January 2019 mark. While the current conditions index shed 1.1 points to 114.4 (January 2019: 108.8), the expectations measure advanced 1.6 points to 90.5 (January 2019: 79.9). The press release termed the strength in sentiment as “surprising given the overall slow pace of economic growth, which was accompanied in January by renewed military engagements in the Mideast, an impeachment trial in the Senate, and a fast spreading coronavirus.”

#5A surge in defense aircraft orders masked a drop in durable goods orders. The Census Bureau reports that new orders for durable manufactured goods rose 2.4 percent in December to a seasonally adjusted $245.5 billion. Much of the increase came from a 168.3 percent surge in defense aircraft orders that had fueled a 7.6 percent jump in transportation goods orders. But net of transportation goods, orders slipped 0.1 percent. Orders climbed for computers/electronics (+0.8 percent) and fabricated metal products (+0.3 percent) but declined for machinery (-1.1 percent), electronic equipment/appliances (-0.6 percent), and primary metals (-0.6 percent). Also taking a step back was orders for nondefense, non-aircraft capital goods orders—a proxy for business investment—which slumped 0.9 percent. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 25, 2020, First-Time Claims, seasonally adjusted): 216,000 (-7,000 vs. previous week; -28,000 vs. the same week a year earlier). 4-week moving average: 214,500 -3.9% vs. the same week a year earlier).
New Home Sales (December 2019, New Home Sales, seasonally adjusted annualized rate): 694,000 (-0.4% vs. November 2019, +23.0% vs. December 2018).
Pending Home Sales (December 2019, Index (2001=100), seasonally adjusted): 103.2 (-4.9% vs. November 2019, +4.6% vs. December 2018).
Case-Shiller Home Price Index (November 2019, 20-City Index, seasonally adjusted): +0.5% vs. October 2019, +2.6% vs. November 2018.
Bankruptcy Filings (2019, Business and Non-Business Filings): 774,940 (+0.2% vs. 2018).
Agricultural Prices (December 2019, Prices Received by Farmer): +0.8% vs. November 2019, -0.8% vs. December 2018.

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