Economic releases this week continue to reflect the strength of the consumer, while restrictive monetary policy is slowing inflation.
The US economy grew at a surprisingly strong rate of 3.3% in the fourth quarter of 2023, according to the advanced estimate for GDP. The consensus estimate for fourth quarter GDP was significantly lower at 2.0%. The data continues to illustrate the strength of the consumer as personal consumption came in slightly above estimates at 2.8.
However, the strength in the economy continues to defy indications of slowing reflected in macroeconomic indicators. The Conference Board’s Leading Economic Index (LEI) and the Chicago Fed National Activity Index (CFNAI) were both in negative territory at -0.1% and -0.15% respectively for December. Consistent monthly declines have historically been harbingers of economic recessions, although this is still not Chandler’s base case scenario for 2024.
Home sales showed a modest increase in December with new home sales increasing 8% month-over-month, a significant rebound from the 9% decline in November, yet below the consensus estimate of 10%. Pending home sales also increased at a rate of 8.3% for December, up from a relatively flat reading in the prior month.
The consumer continues to show strength across several metrics. Personal Income data was in line with estimates, increasing 0.3% month-over-month while personal spending exceeded consensus estimates reaching 0.7% in December, following a 0.4% increase month-over-month in November. Initial jobless claims were reported at 214,000 for the week, remaining relatively low while continuing claims remained elevated at 1,833,000.
Meanwhile, inflation data continued to show signs of slowing. December Personal Consumption Expenditures (PCE) data came in-line with consensus estimates for most metrics. Headline PCE was reported at 2.6% year-over-year unchanged from November while headline PCE increased 0.2% month-over-month from a prior decline of 0.1% in November. The Fed’s preferred gauge, Core PCE, slowed to 2.9%, slightly below the consensus estimates of 3.0%. The continued slowing of inflation gives the Federal Reserve (Fed) the option to monetary policy in 2024.
The market is anticipating several rate cuts by the Fed in 2024. However, US Treasury yields remain volatile and trended higher this week, surpassing 4% across all maturities from T-Bills to the 30-year bond. The move yields this week led to a less inverted yield curve. An inverted yield occurs when yields on shorter-term bonds are higher than the yields on longer-term bonds. The difference in yield between the 2-year/10-year yield ended the week at -20 basis points, approaching its lowest level since initially inverting in July 2022.
Dallas Fed Manf. Activity, FHFA House Price Index MoM, S&P CoreLogic Case Shiller 20-City Index, Conference Board Consumer Confidence, JOLTS Job Openings, Dallas Fed Services Activity, MBA Mortgage Applications, ADP Employment Change, MNI Chicago PMI, FOMC Rate Decision, Challenger Job Cuts, Nonfarm Productivity, Initial Jobless Claims, Continuing Claims, ISM Manufacturing, Change in Nonfarm Payrolls, Unemployment Rate, Average Hourly Earnings, Labor Force Participation Rate, University of Michigan Sentiment
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