- Economic growth stable, but consumer, business spending drop.
- Consumer plans to buy a vehicle fall.
- House-buying intent rises but little inventory available.
The year of wild cards continued with a momentous Friday leaving us with mounting concerns about the coronavirus, stock market declines resulting in net declines for the year, Great Britain separating from the European Union, and the impeachment trial heading for a vote.
It was also a week filled with new and important economic data.
Stable growth: The first GDP estimates for 2019’s fourth quarter were released indicating stable growth with the third quarter, although the growth was supported by a substantial decline in imports. The concerning trends in the GDP data were that consumer spending growth continued to decelerate and business investment was negative for the third quarter in a row.
Fed holds line: Inflation has been low, which also boosted the reported real GDP growth. With low inflation and a strong labor market, the Fed kept monetary policy parked as expected. Even though they left rates unchanged, bond yields fell this week almost like a cut in rates. The 10-year U.S. Treasury fell 17 basis points this week and is down now more than 40 basis points for the year. The decline in longer-term yields has resulted in portions of the yield curve inverting again.
Consumers spend less: Personal income and spending data for December saw income growth and spending growth slowing again. Consumers continue to spend more on interest payments despite the decline in interest rates in 2019.
Vehicle purchase plans fall: Consumer confidence increased in January, but the survey data were collected while the news was upbeat following the U.S.-China Phase 1 Trade deal signing but before the coronavirus outbreak. Even with the increase in confidence, plans to purchase a vehicle declined.
House buying plans rise: Plans to buy a house increased modestly but are lower than last year. New and pending home sales in December disappointed but home sales remain up year over year. The biggest issue for the housing market is lack of supply.
Looking ahead: This week we will get consumer credit data for December, and the employment report and new-vehicle sales for January.