Year-End Growth: January 23 – 27

The economy grew at a moderate pace as 2022 ended. Here are the five things we learned from U.S. economic data released during the week ending January 27.

The U.S. economy expanded during Q4. The Bureau of Economic Analysis reports that Gross Domestic Product (GDP) grew at a seasonally adjusted annualized rate (SAAR) of 2.9 percent. This followed Q3’s 3.1 percent advance and Q1 and Q2 declines of -1.6 percent and -0.6 percent, respectively. The U.S. economy expanded 2.1 percent for all of 2022, down from 2021’s 5.9 percent gain but better than 2020’s pandemic-fueled 2.8 percent contraction. Driving Q4’s expansion was the change in private inventories (adding 146 basis points of GDP growth), consumption (+142 basis points), net exports (+56 basis points), federal government spending (+39 basis points), and state/local government expenditures (25 basis points). Drags on the economy were residential fixed investment (i.e., housing, costing 146 basis points of GDP growth) and nonresidential fixed investment (-120 basis points). The BEA will revise its Q4 GDP estimate twice over the next two months. 

Personal consumption fell in December. Real Personal Consumption Expenditures (PCE) dropped a seasonally adjusted 0.3 percent after declining 0.2 percent in November. The Bureau of Economic Analysis data shows that real spending on goods plummeted 1.6 percent, with decreases for durable and nondurable goods of -1.9 percent and -1.4 percent, respectively. Services expenditures grew 0.5 percent. Without adjustments for inflation, nominal PCE decreased 0.2 percent even as nominal personal income (+0.2 percent) and disposable income (+0.3 percent) grew. Inflation-adjusted real disposable income increased 0.2 percent. The savings rate swelled by a half-percentage point to +3.4 percent, its highest point since last June. Real consumer spending was 2.2 percent above year-ago levels despite a 1.7 percent drop in real disposable income. The same report finds inflation continuing to moderate at the PCE price index, up only 0.1 percent in December and 5.0 percent over the past year. The core price index—which nets out energy and food—grew 0.3 percent for the month and 4.4 percent over the past year. Both were below recent highs but remained about the Federal Reserve’s two-percent target. 

Data suggest below average economic growth in December. The Chicago Fed National Activity Index (CFNAI) edged up by two basis points to a reading of -0.49. A negative reading suggests the U.S. economy is growing slower than its historical average. Only 40 of the CFNAI’s 85 components positively contributed to the index. Among major component categories, there were improvements for those associated with employment, sales/orders/inventories, and production (although the former two made negative contributions). Deteriorating slightly were personal consumption/housing indices. The three-month moving average shed 19 basis points to a reading of -0.33. A year earlier, the moving average was at +0.44. 

New home sales crept up in December. The Census Bureau reports that new single-family home sales grew 2.3 percent to a seasonally adjusted annualized rate (SAAR) of 616,000 units. Even though sales increased over the past three months, they remained a startling 26.6 percent below year-ago levels. Sales gained in the Midwest and South but fell in the Northeast and West. The 461,000 new homes available for sale matched that of November but were up 18.5 percent from a year earlier. It represented a 10.0 month supply. The median sales price of $442,100 was up 7.8 percent from a year earlier. 

Consumer sentiment improved a bit more in January. The University of Michigan’s Index of Consumer Sentiment added 5.2 points to a seasonally adjusted 64.8 (1966Q1=100). While the index has risen 14.9 points since June, it remained low by historical standards. The current conditions index jumped 8.0 points to 68.4, while the expectations measure had a more modest 2.8 point gain to 62.7. Inflation expectations continued to moderate, falling a half percentage point to +3.9 percent. (Note that this was still above pre-pandemic expectations). Two-thirds of Americans were “expecting an economic downturn in the next year.” 

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

• Jobless Claims (Week ending January 21, 2023, First-Time Claims, seasonally adjusted): 186,000, -15,000 vs. the previous week, -6,000 vs. the same week a year earlier). 4-week moving average: 197,500 (-14.5% vs. the same week a year earlier). 
• Durable Goods (December 2022, New Orders for Manufactured Goods, seasonally adjusted): $285.9 billion (+5.6% vs. November 2022; +11.1% vs. December 2021).
• Pending Home Sales (December 2022, Index (2001=100), seasonally adjusted): 76.9 (+2.5% vs. November 2022; -33.8% vs. December 2021). 
• State Employment (December 2022, Nonfarm Payrolls, seasonally adjusted): Unchanged in 49 states and the District of Columbia and decreased in 1 state vs. November 2022. Increased in 42 states and unchanged in 8 states and the District of Columbia. 

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