Key Highlights

  • The first estimate of fourth-quarter real GDP showed a slowing pace of growth at 2.3% from the 3.1% rate in the prior quarter, but underneath the total, consumer spending accelerated as spending on goods and services both increased.
  • Consumer spending in December was strong and grew from a strong and upwardly revised November. Personal income growth remained healthy but didn’t grow like spending, so the savings rate declined. Inflation also picked up but came in as expected.
  • New home sales improved in December, but pending home sales, which represent new contracts on existing homes, declined.

Economic Growth and Consumer Spending

The first estimate of fourth-quarter real GDP showed a slowing pace of growth at 2.3% from the 3.1% rate in the prior quarter, but underneath the total, consumer spending accelerated as spending on goods and services both accelerated.

  • Personal consumption accelerated to 4.2% growth from 3.7%, driven by increased spending on goods and services.
  • Spending on goods grew by 6.6% while spending on services increased by 3.1%.
  • Declining nonresidential investment and a decrease in inventories contributed to a 5.6% decline in private domestic investment.
  • Government spending growth slowed to 2.5% from 5.1% in the previous quarter.

Personal Income and Inflation

Consumer spending in December was strong and grew from a strong and upwardly revised November. Personal income growth remained strong but didn’t grow like spending, so the savings rate declined. Inflation also picked up but came in as expected.

  • Personal income growth accelerated to 0.4%, with employee compensation growth at 0.5%.
  • The savings rate declined to 3.8%, a two-year low, as spending outpaced income growth.
  • The Personal Consumption Expenditure (PCE) Index, a key gauge of inflation, accelerated to 0.3% growth, with overall price inflation at 2.6% year over year.

Housing Market Trends

New home sales improved in December, but pending home sales, which represent new contracts on existing homes, declined.

  • New home sales at an annualized pace of 698,000 were up 3.6% month-over-month and 6.7% year over year.
  • Pending home sales declined by 5.5% in December, with all regions experiencing a decrease.
  • Higher mortgage rates and increased supply have dampened demand in the housing market.

Consumer Confidence and Vehicle Purchase Plans

Consumer confidence declined in January, with plans to purchase a vehicle dropping from recent highs but remaining higher than a year ago.

  • The Conference Board Consumer Confidence Index® declined 4.9% in January, which was worse than the small decline expected, but December’s index was revised much higher.
  • Consumers’ views of the present and of the future both declined, but the view of the present declined the most.
  • Consumer confidence was down 6.1% year over year, the first yearly decline since September.
  • Plans to purchase a vehicle in the next six months dropped to the lowest level since August but plans to purchase remained higher year over year.