The Federal Reserve cut its short-term interest rate target but signaled fewer cuts than previously expected for 2025. Here are the five things we learned from U.S. economic data released during the week ending December 20.
After another rate cut, the Fed may slow down in 2025. The statement released following this past week’s Federal Open Market Committee (FOMC) meeting essentially mirrored that from November’s meeting. The statement included references that the U.S. economy was expanding “at a solid pace,” the labor market had “eased,” and inflation remained “elevated” but continued to move towards the Fed’s two-percent target rate. Under these conditions, the FOMC voted to cut its fed funds target rate by 25 basis points to a range of 4.25 – 4.50 percent. One committee member opposed the rate cut.
Released in conjunction were the latest economic projections of Federal Reserve Board members and Bank presidents. They expect the U.S. economy to grow 2.1 percent next year, with unemployment stable at 4.3 percent. The group raised their 2025 inflation expectations from their September forecast, with the PCE price index and core PCE price index both rising 2.5 percent next year (up from the +2.1 percent and +2.2 percent forecasts published in September). Because of inflation’s stubbornness to return to the two percent target, the median forecast now has only two quarter-point rate cuts in the fed funds target rate next year (to a range of 3.75-4.00 percent). In September, the 2025 median forecast anticipated four quarter-point rate cuts.
Q3 U.S. economic expansion was more robust than previously believed. Real Gross Domestic Product increased 3.1 on a seasonally adjusted annualized basis during the third quarter. This represents an increase from the 2.8 percent gain reported by the Bureau of Economic Analysis twice over the two past months. The upward revision resulted from higher exports and consumer spending levels than previously believed. Driving Q3 economic growth were (in descending order) personal spending, exports, federal and state/local government spending, and fixed business investment. The same report finds corporate profits declining 0.4 percent to an annualized $3.802 trillion. Profits were 6.0 percent ahead of their year-ago pace.
Personal spending increased in November. The Census Bureau reports real Personal Consumption Expenditures (PCE) increased by a seasonally adjusted 0.3 percent, up from October’s 0.1 percent gain. Goods spending rose 0.7 percent (split between gains for durables and nondurables of 1.8 percent and 0.2 percent, respectively), while that for services edged up 0.1 percent. Without inflation adjustments, nominal PCE grew 0.4 percent, supported by 0.3 percent gains for both nominal personal income and disposable income. Real disposable income increased 0.2 percent. The savings rate slipped by 1/10th of a percentage point to +4.4 percent. Relative to a year earlier, a 2.6 percent rise in real disposable income supported a 2.9 percent bounce in real PCE. The PCE price index increased 0.1 percent in November and had risen 2.4 percent over the past 12 months. Net of energy and food, the core PCE price index comparables were +0.1 percent and +2.8 percent, respectively.
November retail sales were quite jolly. According to the Census Bureau, retail and food services sales surged 0.7 percent to a seasonally adjusted $724.6 billion. Much of the gain resulted from a 2.6 percent rise at auto & parts dealers. Net of those sales and that at gas stations (+0.1 percent), core retail sales increased 0.2 percent. Sales grew at retailers focused on sporting goods/hobbies (+0.9 percent), building materials (+0.4 percent), furniture (+0.3 percent), and electronics/appliances (+0.3 percent). Declining were sales at department stores (-0.6 percent), restaurants/bars (-0.4 percent), apparel retailers (-0.2 percent), and grocery stores (-0.2 percent). Retail sales were 3.8 percent above year-ago levels, with core retail sales 3.9 percent over its year-ago pace.
Existing home sales jumped in November. Sales of previously owned homes rose 4.8 percent to a seasonally adjusted annualized rate (SAAR) of 4.15 million, the National Association of Realtors measure’s highest point since March. Sales were up 6.1 percent from a year earlier. Sales increased in all four Census regions on both a month-to-month and year-to-year basis. Inventories contracted 2.9 percent to 1.330 million units, which remained 17.7 percent larger than a year earlier and equivalent to a 3.8-month supply. The median sales price of $406,100 was up 4.7 percent year-to-year. The press release described housing market momentum as “building.”
Other U.S. economic data released over the past week:
- Jobless Claims (Week ending December 14, 2024, First-Time Claims, seasonally adjusted): 220,000, -22,000 vs. the previous week, +13,000 vs. the same week a year earlier). 4-week moving average: 225,500 (+7.3% vs. the same week a year earlier).
- Leading Economic Index (November 2024, Index (2016=100), seasonally adjusted): 99.7 (+0.3% vs. October 2024; -1.6% vs. May 2024).
- Industrial Production (November 2024, Index, seasonally adjusted): -0.1% vs. October 2024; -0.9% vs. November 2023.
- University of Michigan Surveys of Consumers (December 2024-final, Index of Consumer Sentiment (1966Q1=100), seasonally adjusted): 74.0 (+3.1% vs. November 2024; +6.2% vs. December 2023).
- Housing Starts (November 2024, Privately-Owned Housing Starts, seasonally adjusted annualized rate): 1.289 million (-1.8% vs. October 2024; -14.6% vs. November 2023).
- Housing Market Index (December 2024, Index (>50=More Homebuilders Say the Housing Market Is “Good” Than “Poor,” seasonally adjusted): 46 (November 2024: 46; December 2023: 37).
- Business Inventories (October 2024, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.587 trillion (+0.1% vs. September 2024; +2.4% vs. October 2023).
- Treasury International Capital Flows (October 2024, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$136.3 billion (September 2024: +$263.1 billion; October 2023: -$43.7 billion).
- State Employment (November 2024, Nonfarm Payrolls, seasonally adjusted): Vs. October 2024: Up in 4 states and the District of Columbia and unchanged in 46 states. Vs. November 2023: Up in 33 states and unchanged in 17 states and the District of Columbia.
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What We Learned About the U.S. Economy Last Week 