Week in Review: February 17, 2023

Economic Commentary

Consumer sentiment rose in early February, led by an improvement in consumers’ current views of the economy, which were slightly offset by a small decline in future expectations. More notably, while five-year inflation expectations remained unchanged at 2.9%, one-year expectations rose 0.3%, to 4.2%. That marked the first increase in six months and will almost certainly be noticed by the Fed, which has stated that consumer inflation expectations factor into its monetary policy decisions. While the increase is just one of many data points the Fed considers when making its policy decisions, at the margin, February’s reading argues for the Fed maintaining or increasing its inflation fighting efforts.

Consumer debt rose $11.6B in December, far less than the expected $25B increase economist had expected. The 2.6% increase was the smallest in more than two years as consumers began to cut spending as savings decline and recession concerns build. Revolving credit, consisting largely of credit card debt, increased at an annual rate of 7.3%, its slowest pace since December of 2021.

Weekly jobless claims rose 13K to 196K after falling to a nine-month low the prior week. The reading, which was slightly above the 190K consensus forecast, marked the first increase since mid-December. The four-week moving average of claims, which smooths week-to-week volatility, fell 2.5K to 189.3K, the lowest level since April. The job market has remained resilient despite growing economic headwinds from the Fed’s interest rate increases and continues to provide support for the Fed on its monetary policy tightening path.

Of Note