Inflation Has Been Slowing As the Year Comes to a Close: December 19 – 23

Inflation moderated in November. Here are the five things we learned from U.S. economic data released during the week ending December 23.

Inflation mellowed, but consumer spending was flat in November. The Bureau of Economic Analysis reports that real Personal Consumption Expenditures (PCE) held steady during the month, the first time since July that spending failed to increase. Spending on goods fell 0.6 percent, with declines for durables and nondurables of 1.5 percent and 0.1 percent, respectively. Services PCE gained 0.3 percent. Nominal (not inflation-adjusted) PCE inched up 0.1 percent, while nominal personal and disposable income each rose 0.4 percent. After adjustments for inflation, real disposable income grew 0.3 percent. The savings rate rebounded from its pandemic low with a 2/10^ths of a percentage point increase to +2.4 percent. Real consumer spending has grown 2.5 percent over the past year, even as disposable income was off 2.5 percent. 

The PCE Price Index inched up 0.1 percent, its smallest gain since July. Removing energy and food from the data has the core PCE Price Index growing 0.2 percent (also its smallest since July). The headline inflation measure has grown 5.5 percent over the past year, while the core measure was up 4.7 percent. Both remained well above the Federal Reserve’s two percent inflation target, although the 12-month comparables have declined recently.

Forward-looking data still look dismal. The Conference Board’s Leading Economic Index (LEI) dropped 1.0 percent in November and has fallen 3.7 percent over the past six months to a reading of 113.5 (2016=100). Only four of ten LEI components made positive contributions to the index, led by stock prices and business investment. The Coincident Index (CEI) inched up 1/10^th of a point to 109.4, leaving the CEI up 1.2 percent over the past six months. Three of four CEI components made positive contributions, led by personal income. The Lagging Index (LAG) added 2/10^ths of a point to 116.4. LAG has grown 2.7 percent over the past six months. The press release said the indices confirm “a lack of economic growth momentum in the near term.”

Existing home sales’ losing streak extended to 10 straight months. The National Association of Realtors estimates sales of previously owned homes dropped 7.7 percent in November to a seasonally adjusted annualized rate (SAAR) of 4.090 million. Home sales were a startling 35.4 percent below year-ago levels. Sales declined in all four Census regions on both a month-to-month and year-to-year basis. The number of homes available for sale shrank 6.6 percent to 1.140 million units, with inventories representing a 3.3 month supply. The median sales price of $370,700 was up 3.5 percent from a year earlier. The press release blames rising interest rates and tight inventory for the “frozen” real estate market. 

Lower inflation brought holiday cheer to consumers. The Conference Board’s Consumer Confidence Index surged 6.9 points in December to a seasonally adjusted 108.3 (1985=100). While off from its year-ago reading of 115.8, this was the index’s best reading since February. The current conditions index added 8.9 points to 147.2, while the expectations index rose 5.7 points to 82.4. 19.0 percent of survey respondents viewed current business conditions as “good,’ just under the 20.1 percent that saw them as “bad.” This was even though 47.8 percent of consumers indicating that jobs were “plentiful,” which is well above the 12.0 percent saying that they were “hard to get.” The press release noted that consumers’ inflation expectations “retreated…to their lowest level since September 2021.”

The University of Michigan’s Index of Consumer Sentiment grew by 2.9 points to a seasonally adjusted 59.7 (1966Q1=100). A year earlier, the same measure was at 70.6. Most of the increase came from a brighter outlook: the expectations index added 4.3 points to 59.9, while the current conditions index was up 6/10^ths of a point to 59.4. Survey respondents anticipate prices will rise 4.4 percent in 2023, their lowest inflationary expectations in 18 months. 

Durable goods orders fell in November. New orders for manufactured goods declined for the first time in four months, dropping 2.1 percent to a seasonally adjusted $270.6 billion. The Census Bureau data series year-to-date was up 10.5 percent from 2021. Transportation goods orders slumped 6.3 percent as civilian aircraft orders plummeted 36.4 percent. Net of transportation goods, new orders inched up 0.2 percent, with gains for fabricated metal products, machinery, computers/electronics, and electrical equipment/appliances. Durable goods shipments advanced 0.2 percent to $275.9 billion, with year-to-date activity 10.9 percent ahead of year-ago levels. Unfilled orders held unsteady at $1.143 trillion, while inventories grew 0.1 percent to $489.7 billion. 

Other U.S. economic data released over the past week:

• Jobless Claims (Week ending December 17, 2022, First-Time Claims, seasonally adjusted): 216,000, +2,000 vs. the previous week, -17,000 vs. the same week a year earlier). 4-week moving average: 221,750 (-3.2% vs. the same week a year earlier). 
• Gross Domestic Product (2022Q3-3^rd Estimate, Change in Gross Domestic Product From Previous Quarter, seasonally adjusted rate): +3.2% (2022Q2: -0.6%; 2021Q3: 
• New Home Sales (November 2022, Sales of New Single-Family Homes, seasonally adjusted annualized rate): 640,000 (+5.8% vs. October 2022; -15.3% vs. November 2021). 
• Housing Starts (November 2022, Privately-Owned Housing Starts, seasonally adjusted annualized rate): 1.427 million (-0.5% vs. October 2022; -16.4% vs. November 2021). 
• Housing Market Index (December 2022, Index (>50=More Homebuilders View Housing Market as “Good” than “Bad,” seasonally adjusted): 31 (vs. November 2022: 33; December 2021: 84).

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