Fourth quarter real GDP growth was revised down slightly with less strength in consumer spending, according to the third estimate released by the Bureau of Economic Analysis (BEA) on March 30. Consumer income growth and spending growth both decelerated in February. The personal savings rate increased. Key measures of inflation showed downward progress.
Pending home sales increased again in March. Jobless claims deteriorated modestly.
Measures of consumer confidence and sentiment were mixed in March. Confidence increased as future expectations improved. Measures of consumer sentiment declined as gas prices rose, and news of banking failures dominated the news.
Economic Growth Revised Down Slightly on Less Strength in Consumer Spending
The fourth-quarter real GDP increase was revised to a 2.6% annualized increase from the second BEA estimate of 2.7%. Personal consumption was revised down to an increase of 1.0% from the second estimate of 1.4%. This was the least amount of growth in personal spending since Q1 2020.
Spending on goods was revised to a decline of 0.1% compared to the 0.5% decline in the last estimate. Spending on services was revised down to a gain of 1.6% from 2.4%. Gross private investment was upwardly revised to an increase of 4.5% from 3.7%, driven by surging inventories.
The downward revision did not change real GDP growth from a year ago at 0.9%. Growth in all of 2022 was 2.1%.
Consumer Spending, Personal Income Growth Slowed in Latest BEA Estimates
According to BEA estimates, consumer spending growth decelerated in February with a nominal increase of 0.2%, following an upwardly revised 2.0% increase in January. Personal income growth also decelerated to 0.3% from 0.6% in January.
Employee compensation growth decelerated to 0.3% from 0.9% in January. Government transfer payments accelerated to grow 0.5%, driven by growth in unemployment compensation. Proprietors’ income declined 0.1%, which was unchanged from January.
Spending on durable goods declined 1.4% in February, spending on nondurable goods increased 0.9%, and spending on services increased 0.2%, and all were decelerations from growth in January. Spending on motor vehicles and parts declined by 4.8%, following a 14.3% jump in January.
The personal savings rate increased to 4.6%, the highest level in over a year. The Personal Consumption Expenditure Index (PCE), the key gauge of inflation that the Fed follows, increased 0.3% in February, which was a deceleration from an increase of 0.6% in January.
Overall price inflation, according to the PCE, declined to 5.0% in February from a year ago from a downwardly revised 5.3% in January, while the core inflation rate dropped to 4.6% from 4.7% in January. Factoring in inflation, real spending was down 0.1% in February, down from an increase of 1.5% in January.
Home Sales Edge Up, as Do Jobless Claims
Pending home sales increased 0.8% in February when a 3% decline had been expected. Like new home sales, pending home sales are based on new contracts, and both have seen gains to start 2023. The increases indicate that the decline in housing may have already bottomed out, but the strong start preceded the credit tightening that began in March with bank failures.
Seasonally adjusted initial jobless claims increased by 7,000 to 198,000 for the week ending March 25. Non-seasonally adjusted initial claims increased by 10,900. Continuing claims, representing people who previously filed and remain on traditional unemployment compensation increased by 4,000 from the previous week, increasing the total to 1.69 million as of the week ending March 18. That level of continuing claims was 74,000 lower than before the pandemic.
The broadest measure of continuing claims declined by 32,000 to 1.91 million in the latest data, which lags the traditional number and is not seasonally adjusted. That total measure is down 52,500 over the last four weeks and is 196,000 lower than the pre-pandemic level.
The labor market is not as strong as it was a year ago, but there is little evidence of major deterioration in the jobless claims data. Moreover, jobless claims remain at historically low levels relative to the job base.
Consumer Sentiment and Plans for Vehicle Purchases Mixed
The Conference Board Consumer Confidence Index® increased by 0.8% in March, as views of the present situation declined by 1.2%, but future expectations increased by 3.7%. Consumer confidence was down 3.2% year over year. Plans to purchase a vehicle in the next six months increased yet were lower than in January but higher than a year ago.
The confidence index did not decline as much during the pandemic as the sentiment index from the University of Michigan, and the two series diverged again in March. The Michigan index fell 7.5% in March but was up 4.4% from a year ago. Views of current economic conditions and expectations both declined. Consumers’ views of vehicle buying conditions declined in March but remained better than a year ago.
The daily index of consumer sentiment from Morning Consult measured declining sentiment in March that worsened as the month progressed, following an up month in February. That index fell 2.2% in March as the price of gasoline increased. According to AAA, the national average price for unleaded gas increased 4.2% in March to $3.50 per gallon on March 30, down 17% from a year ago.
Jonathan Smoke is the chief economist at Cox Automotive.