The Fed downshifts as inflation and economic activity moderate. Here are the five things we learned from U.S. economic data released during the week ending December 16.
Another (but smaller) rate hike by the Fed. The policy statement released following this past week’s Federal Open Market Committee (FOMC) meeting is nearly identical to the one that followed the early November meeting. It talked about “robust job gains,” “modest” economic growth, and “elevated” inflation. One of the few differences was that the FOMC voted unanimously to raise the fed funds target rate by 50 basis points, as opposed to November’s 75-basis point bump. This left the short-term interest rate target between 4.25 and 4.50 percent. The statement also reaffirmed the committee’s two-percent inflation target, which suggests more rate hikes are in the offing.
Released in conjunction were economic projections from Federal Reserve Board members and Federal Reserve Bank presidents, and the picture painted was not particularly rosy. The median 2023 forecast has the U.S. economy expanding at a feeble +0.5 percent and the unemployment rate growing by nearly a whole percentage point to (a still low) 4.6 percent. Better news is that anticipated inflation will slow to 3.1 percent (with core inflation at 3.5 percent), although this remains above the Fed’s target. As a result, the consensus forecast has the fed funds target rate growing by another 75 basis points in 2023.
Retail sales slipped in November. Retail and food services sales declined 0.6 percent to a seasonally adjusted $689.4 billion. The Census Bureau measure was 6.5 percent above its year-ago reading. (Note that this data series does not adjust for price changes.) Sales fell at both motor vehicle/parts dealers (-2.3 percent) and gasoline stations (-0.1 percent). Net of both, core retail sales decreased 0.2 percent in November but were 6.7 ahead of their year-ago level. Sales improved at restaurants/bars (+0.9 percent), grocery stores (+0.8 percent), and health/personal care retailers (+0.7 percent). Sales fell at retailers focused on furniture (-2.5 percent), building materials (-2.5 percent), electronics/appliances (-1.5 percent), sporting goods/hobbies (-0.6 percent), and general merchandise (-0.1 percent).
Consumer inflation slowed in November. The Consumer Price Index (CPI) inched up 0.1 percent on a seasonally adjusted basis, down from 0.4 percent gains in September and October. The Bureau of Labor Statistics measure was up 7.1 percent over the past year, below the 9.1 percent year-to-year increase reported in June (but nevertheless inflated). Energy prices fell for the fourth time in five months (-1.6 percent) as gasoline prices dropped 2.0 percent. Energy CPI has risen 13.1 percent over the past year. Food prices jumped 0.5 percent and were 10.6 percent above year-ago levels. Net of energy and food, core CPI grew 0.2 percent in November, down from the previous month’s 0.3 percent gain, and 6.0 percent over the past year. Rising were prices for shelter (+0.6 percent), apparel (+0.2 percent), and medical care commodities (+0.2 percent). Prices fell for used cars/trucks (-2.9 percent), medical care services (-0.7 percent), and transportation services (-0.1 percent).
Manufacturing production decelerated in November. The Federal Reserve reports that manufacturing output dropped a seasonally adjusted 0.6 percent, its first decline since June. Durable and nondurable goods production each fell 0.6 percent, with the former pulled down by a 2.8 percent drop for motor vehicles. Overall industrial production slipped 0.2 percent, its third decline over the past four months. Mining output declined 0.7 percent, but utilities production surged 3.6 percent (thanks to a 4.8 percent rise at electricity utilities). Manufacturing output was 1.2 percent above year-ago levels, while industrial production’s 12-month comparable was +2.5 percent.
Small business owner sentiment continued wobbling in November. The Small Business Optimism Index added 6/10thsof the point to a seasonally adjusted 91.9. Even with the gain, the National Federation of Independent Business measure has been above 100 (=1986) only twice over the past two years. Six of ten index components improved in November, including sizable increases for earnings trends and expected real sales. Expected inventories plans had the largest decline among the four falling components. The press release noted that businesses were “seeing a slight ease in inflation pressures, but prices remain high.”
Other U.S. economic data released over the past week:
- Jobless Claims (Week ending December 10, 2022, First-Time Claims, seasonally adjusted): 211,000, -20,000 vs. the previous week, -17,000 vs. the same week a year earlier). 4-week moving average: 227,250 (-3.3% vs. the same week a year earlier).
- Import Prices (November 2022, All Imports, not seasonally adjusted): -0.6% vs. October 2022; +2.7% vs. November 2021. Nonfuel Imports: -0.4% vs. October 2022; +1.9% vs. November 2021.
- Export Prices (November 2022, All Exports, not seasonally adjusted): -0.3% vs. October 2022; +6.3% vs. November 2021. Nonagricultural Exports: -0.6% vs. October 2022; +5.6% vs. November 2021.
- State Employment (November 2022, Nonfarm Payrolls, seasonally adjusted): Vs. October 2022: Increased in 8 states and unchanged in 42 states and the District of Columbia. Vs. November 2021: Increased in 44 states and the District of Columbia and unchanged in 6 states.
- Business Inventories (October 2022, Manufacturers and Trade Inventories, seasonally adjusted): $2.468 trillion (+0.3% vs. September 2022; +16.5% vs. October 2021).
- Monthly Treasury Statement (November 2022, Federal Budget Deficit Thus Far in FY23): -$336.4 billion (-5.6% vs. 1st 2 Months of FY22).
- Treasury International Capital Flows (October 2022, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$63.7 billion (September 2022: +$93.4 billion; October 2021: -$22.1 billion).
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