The Federal Reserve is poised to make a move this spring. Here are the five things we learned from U.S. economic data released during the week ending January 28.
While holding steady this time, expect a Fed rate bump in March. The policy statement released following the past week’s meeting of the Federal Open Market Committee (FOMC) continued to note “solid” job gains and “strengthening economic activity. The statement also pointed to “supply and demand imbalances” that results in “elevated levels of inflation.” While the FOMC decided to maintain the near-zero fed funds rate, it “expects it will soon be appropriate” to bump up its short-term interest rate target. This suggests that there will be a rate hike at its March meeting. Also, the Federal Reserve will slow further its purchases of Treasury and mortgage-back securities, with that program scheduled to end in March.
Economic growth regained some momentum in Q4. Gross Domestic Product (GDP) expanded at a 6.9 percent seasonally adjusted annualized rate (SAAR) during the fourth quarter of 2021. This followed Q3’s 2.3 percent advance and left the Bureau of Economic Analysis’s measure up 5.7 percent for all of 2021. The most significant positive contributors to Q4’s economic expansion were (in declining order): the change in business inventories, exports, personal spending, and fixed nonresidential (business) investment. Impediments to further growth were imports, federal government expenditures, state/local government expenditures, and fixed residential investment. The BEA will update its GDP estimates twice over the next two months.
Personal spending fell for a second straight month in December. The Bureau of Economic Analysis reports that real Personal Consumption Expenditures (PCE) dropped a seasonally adjusted 1.0 percent during the month, following a 0.2 percent decline in November. Goods spending plummeted 3.1, split by drops for durable and nondurable goods of -4.9 percent and -2.1 percent, respectively. Services expenditures edged up 0.1 percent. Nominal (not-inflation adjusted) PCE slumped 0.6 percent. The declines occurred even as nominal personal and disposable income grew 0.3 percent and 0.2 percent, respectively. Real disposable income decreased 0.2 percent. As a result, the savings rate expanded by 7/10ths of a percentage point to +7.9 percent. Prices jumped again. The PCE price index grew 0.4 percent in December and has risen 5.8 percent over the past year. Removing both energy and food, core prices jumped by a half-point in December and have surged 4.9 percent over the past year (more than twice the Federal Reserve’s two-percent target).
Consumer sentiment did not recover in January. The Conference Board’s Consumer Confident Index lost 1.4 points to a seasonally adjusted 113.8 (1985=100). The current conditions index advanced by 3.4 points to 148.2, while the expectations measure lost 4.6 points to 90.8. 21.1 percent of survey respondents view current economic conditions as “good,” compared to 25.6 percent who saw them as “bad.” Just over half of consumers report that jobs were “plentiful,” well above the 11.3 percent who indicate that jobs were “hard to get.” The press release noted that respondents’ concerns about inflation had declined “but remained inflated.”
Meanwhile, the University of Michigan’s Index of Consumer Sentiment shed 3.4 points to a seasonally adjusted 67.2 (1966Q1=100), its lowest reading in more than a decade. Both the current and expected conditions measures pulled back in January—the former lost 2.2 points to 72.0 and the latter declined by 5.2 points to 64.1. The press release noted that “confidence in government economic policies is at its lowest level since 2014.”
Durable goods orders—outside of aircraft—increased in December. The Census Bureau indicates that new orders for manufactured durable goods declined 0.9 percent to a seasonally adjusted annualized rate (SAAR) of $267.6 billion. Transportation goods orders slumped 3.9 percent as aircraft orders declined. Net of transportation goods, orders increased 0.4, boosted by gains for primary metals and fabricated metal products. Civilian nonaircraft capital goods orders held steady in December. Durable goods shipments rose 0.8 percent to $266.0 billion, while unfilled orders swelled 0.5 percent to $1.268 trillion and inventories expanded 0.7 percent to $473.6 billion.
Other U.S. economic data released over the past week:
- Jobless Claims (Week ending January 22, 2022, First-Time Claims, seasonally adjusted): 260,000, -30,000 vs. the previous week, -576,000 vs. the same week a year earlier). 4-week moving average: 247,000 (-71.0% vs. the same week a year earlier).
- Chicago Fed National Activity Index (December 2021, Index (0.00=U.S. Economy Expanding at its Historical Average): -0.15 (vs. November 2021; +0.44; December 2020: +0.30).
- State Employment (December 2021, Nonfarm Payrolls, seasonally adjusted): Vs. November 2021: Increased in 17 states and essentially unchanged in 33 states and the District of Columbia. Vs. December 2020: Increased in 48 states and the District of Columbia and essentially unchanged in 2 states.
- New Home Sales (December 2021, Sales of New Single-Family Homes, seasonally adjusted annualized rate): 811,000 (+11.9% vs. November 2021; -14.0% vs. December 2020).
- Pending Home Sales (December 2021, Index (2001=100), seasonally adjusted): 117.7 (-3.8% vs. November 2021; -6.9% vs. December 2020).
- FHFA House Price Index (November 2021, Purchase-Only Index, seasonally adjusted): +1.1% vs. October 2021; +17.5% vs. November 2020).
- S&P Case-Shiller Home Price Index (November 2021, U.S. National Index, seasonally adjusted): +1.0% vs. October 2021; +18.8% vs. November 2020.
- Employment Cost Index (December 2021, U.S. National Index, seasonally adjusted): +1.0% vs. September 2021. +4.0% vs. December 2020.
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