Week in Review: January 27, 2023

Economic Commentary

US economic activity (GDP) increased at a 2.9% annualized rate in 4Q22, better than the 2.8% consensus forecast but down from the 3.2% pace in 3Q22. Growth in the second half of 2022 more than reversed the two consecutive quarterly declines in 1Q22 and 2Q22. For the full year, GDP increased 2.1%. 4Q22 growth was broad based, with all four components – consumer spending, business spending, trade, and government spending – contributing.

Durable goods orders rose 5.6% in December, the most since July 2020, driven by a surge in aircraft orders. Excluding transportation, orders fell -0.1%. A more core measure of business spending fell -0.2% suggesting slowing demand. On a year-over-year basis, durable goods orders rose 9.7%, while core orders were up 3.3%, both coming in stronger than the prepandemic level.

New home sales increased 2.3% in December, up for the third consecutive month. The median price fell 6% to $442.1K. For the year, new home sales fell 16.4%, the largest annual decline since 2009.

Similar to other recent inflation readings, the Fed’s preferred gauge of inflation, personal consumption expenditures (PCE) slowed from 5.5% in November, to 5.0% in December. Core PCE, excluding food and energy prices, slowed 0.3% to 4.4%, in line with estimates. On a month-to-month basis, headline PCE rose just 0.1%, while core PCE rose 0.3%, up from November’s 0.2%.

Personal income slowed from 0.3% in November to 0.2% in December, while consumer spending contracted 0.2%. The decline was led by a -0.9% decline in goods spending while service spending was unchanged from November. The overall slowdown suggests a growing wariness on the part of consumers.

Of Note