- Economic growth numbers revised down. Consumer spending accelerated in January.
- Existing home sales fall for the 12th straight month; new home construction posts an unexpected rise.
- Consumer sentiment rises on lower gas prices.
Fourth quarter real GDP growth was revised down as consumer spending was downgraded more than the slowing originally estimated. Inventory growth helped deliver the relatively strong-looking number, which doesn’t speak to strong economic conditions.
However, consumer spending has accelerated to start 2023. Consumer spending growth accelerated in January as personal income growth also accelerated. The personal savings rate increased, but so did the inflation measures to which the Fed pays the closest attention. The consumer has caught a second wind, but now the Fed must do more than originally thought this year.
Existing home sales declined for the 12th straight month, but new home sales increased again. Total home sales were down 35% in January compared with a year ago.
Consumer sentiment metrics indicated improvement in February, but the most dynamic measure has faded over the last week and given up much of the month’s gain.
GDP Metrics Revised Down
The increase in fourth quarter real GDP was revised down to a 2.7% annualized increase from the 2.9% originally estimated. Personal consumption was revised down to an increase of 1.4% from the original estimate of 2.1%.
Spending on goods was revised to a decline of 0.5% compared to the 1.1% increase first estimated. Spending on services was revised down to a gain of 2.4% from the originally estimated gain of 2.6%. Gross private investment was upwardly revised to an increase of 3.7% from an original estimate of 1.4%, driven by surging inventories.
The downward revision caused real GDP growth year over year to decline to 0.9% from the 1.0% initially estimated. Growth in 2022 remained at 2.2%.
Consumers Catch a Second Wind on Spending
Consumer spending growth accelerated in January with a nominal increase of 1.8%, following an upwardly revised 0.1% decline in December. Personal income growth also accelerated to 0.6% from an upwardly revised 0.3% growth in December.
Employee compensation growth accelerated to 0.9% from an upwardly revised 0.4% in December. Government transfer payments declined 0.1%, but Social Security payments jumped 9%. Proprietors’ income increased by 0.4%, which was unchanged from December.
Spending on durable goods increased by 5.5% in January, while spending on nondurable goods increased by 1.2%. Services saw spending increase by 1.3%. Spending on motor vehicles and parts jumped 11.4%, following a 3.8% decline in December.
The personal savings rate increased to 4.7%, the highest level in a year. The Personal Consumption Expenditure Index (PCE), the key gauge of inflation that the Fed follows, increased 0.6% in January, an acceleration from an upwardly revised increase of 0.4% in December.
According to the PCE, overall price inflation increased to 5.4% y/y in January from an upwardly revised 5.3% in December, while the core inflation rate rose to 4.7% from an upwardly revised 4.6% in December. Factoring in inflation, real spending was up 1.1% in January.
Home Sales Down for 12 Straight Months
Existing home sales declined slightly in January, extending their downward streak to 12 straight months. The existing home sales SAAR declined 0.7% to 4.00 million from 4.03 million in December. At the January rate, existing home sales were down 36.9% from a year ago and were at the slowest pace since October 2010.
Inventory increased by 2.1% to 980,000 units, up 15.3% from a year ago. The National Association of Realtors reported that home sales are bottoming out. Inventory is still moving relatively quickly, as 54% of the homes sold in January were on the market for less than a month. The typical time on the market was 33 days, up from 26 days in December and up from 19 days in January last year.
Homes on the market for over 60 days saw 10% discounts from the original list price. Even with increasing inventory levels, the months’ supply of homes for sale remained at 2.9 months, less than half of what is considered normal. The median sales price declined to $359,000, up just 1.3% from a year ago.
New Home Construction Posts an Unexpected Rise
Based on new contracts signed on newly constructed homes, new home sales delivered a much bigger than expected increase in January. New home sales at an annualized pace of 670,000 were up 7.2% from the previous month but down 19.4% from a year ago. December sales were revised up as well. Compared to January 2019, new home sales were up 11.9%.
New home inventory declined 2.9% from December but was up 11.4% from a year ago. New-home supply fell to 7.9 months, which is about 33% higher than what is considered normal. The share of new homes sold that are finished units is declining. The share was 34% in January, down from 41% in December. Total home sales were up 0.3% for the month and down 34.9% from a year ago.
Consumer Sentiment Improves on Lower Gas Prices
The Consumer Sentiment Index from the University of Michigan increased by 3.2% in February, with both current conditions and expectations improving. Consumers’ views of buying conditions for vehicles declined modestly but remained much better than a year ago. Consumer inflation expectations for 5-10 years remained steady.
The daily index of consumer sentiment from Morning Consult has measured slightly improving sentiment in February so far, as that index was up 0.5% for the month as of Friday. Sentiment has drifted higher so far in February as the price of gasoline declined. The national average price was $3.339 per gallon as of February 23.
One Month Away: Join us for the Q1 2023 Cox Automotive Industry Insights and Forecast Call hosted by Chief Economist Jonathan Smoke and the Industry Insights team on Monday, March 27, at 11 a.m. EST. During this 90-minute session, you will hear how the auto industry performed in the first quarter and how the Cox Automotive team sees the industry progressing this year.
Jonathan Smoke is the chief economist at Cox Automotive.