A Year of Growth: January 22 – 26

Consumer spending and GDP ended 2023 on a high note. Here are the five things we learned from U.S. economic data released during the week ending January 26.

Consumer spending proved resilient and inflation was mild in December. The Bureau of Economic Analysis (BEA) reports real Personal Consumption Expenditures (PCE) grew a seasonally adjusted 0.5 percent, matching its November gain. Goods spending surged 1.1 percent, with durables (+1.5 percent) and nondurables (+0.9 percent) seeing gains. Services expenditures increased 0.3 percent. Without inflation adjustments, nominal PCE jumped 0.7 percent, funded by 0.3 percent in nominal personal income and disposable income. Real disposable income inched up 0.1 percent. The savings rate slipped 4/10^ths of a percentage point to +3.7 percent. Over the past year, real PCE swelled 3.2 percent, boosted by a 4.2 percent jump in real disposable income. The PCE price index—the Federal Reserve’s preferred inflation measure—grew 0.2 percent in December and 2.6 percent over the past year. The core price measure, which removes energy and food, increased 0.2 percent during the month and 2.9 percent for all of 2023. Both remained above the Fed’s two-percent target.

Q4 featured another quarter of solid economic growth. Real Gross Domestic Product (GDP) rose 3.3 percent on a seasonally adjusted annualized basis. While down from Q3’s 4.9 percent, the Bureau of Economic Analysis measure grew 2.5 percent for all of 2023, up from 2022’s 1.9 percent advance, below 2021’s 5.8 percent post-pandemic rebound, and most definitely not indicative of a previously widely-predicted recession. Consumers fueled Q4’s growth rate (contributing 191 basis points to the GDP growth rate). Also boosting economic activity were fixed residential and nonresidential fixed investment, the change in private inventories, exports, and government spending. Look for two revisions from the BEA over the next two months.

Business activity grew at a moderate rate in December. The Chicago Fed National Activity Index (CFNAI) lost 16 basis points to -0.15. A CFNAI reading below 0.00 but above -0.70 indicates the U.S. economy is growing below its historical average. Thirty-seven of the CFNAI’s 85 components made positive contributions to the index. Among the four primary categories, only the one associated with sales/orders/inventories made a positive contribution. The other three—production, employment, and personal consumption/housing—were drags. The CFNAI’s three-month moving average lost four basis points to -0.28.

Forward-looking measures still painted a contrarian view in December. The Conference Board’s Leading Economic Index (LEI) slipped 0.1 percent to 103.1 (2016=100). The LEI has declined 2.9 percent over the past six months. Six of ten LEI components made positive contributions, led by stock prices. The Coincident Economic Index (CEI) grew 0.2 percent to 111.7, leaving it up 1.1 percent over the past six months. All four CEI components made positive contributions. The Lagging Economic Index (LAG) declined 0.2 percent to 118.4 (+0.6 percent over the past six months). The group notes that the measures were “continuing to signal the risk of recession ahead.”  

New home sales jumped in December. The Census Bureau reports that new single-family home sales rose 8.0 percent to a seasonally adjusted annualized rate (SAAR) of 664,000 units. Sales were 4.4 percent ahead of year-ago levels. During the month, sales increased in the Northeast, Midwest, and South but declined in the West. There were 453,000 new homes available for sale, translating into an 8.2 percent inventory. The median sales price of $413,000 was down 13.8 percent from a year earlier.

• Other U.S. economic data released over the past week:
• Jobless Claims (Week ending January 20, 2024, First-Time Claims, seasonally adjusted): 214,000, +25,000 vs. the previous week, +20,000 vs. the same week a year earlier). 4-week moving average: 202,250 (+0.5% vs. the same week a year earlier).
• Pending Home Sales (December 2023, Index (2001=100), seasonally adjusted): 77.3 (+8.3% vs. November 2023; +1.3% vs. December 2022).
• State Employment (December 2023, Nonfarm Payrolls, seasonally adjusted): Held steady in 50 states and the District of Columbia vs. November 2023. Increased in 30 states and held steady in 20 states and the District of Columbia vs. December 2022).
• Bankruptcies (Year ending December 31, 2023, Business and Nonbusiness Filings): 452,990 (+16.8% vs. year ending December 31, 2022).

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