- Consumers’ views of vehicle buying conditions improved to the best level since July 2021 in the University of Michigan index.
- Jobless claims declined to the lowest weekly level since April 2022.
- Economy and consumer spending slowed. Home sales rose.
The fourth quarter saw a slowing in real economic growth, which followed a larger increase in the third quarter. Consumer spending slowed, but declining imports and inventory increases helped deliver the relatively strong number, which looked better than it really was.
Consumer spending fell in December as personal income growth also slowed. Core inflation declined, but real spending growth was negative from a year ago. The personal savings rate increased.
New and pending home sales picked up slightly in December when declines had been expected.
Initial jobless claims declined again in the latest data, but continuing claims continue to rise slowly.
Consumer sentiment metrics were mixed in January.
Economy Slows, Consumer Consumption Decelerates While Government Spending Increases Again
The first estimate of the fourth quarter’s real GDP measured an increase of 2.9% annualized, which followed a larger 3.2% increase in the third quarter.
Personal consumption decelerated to a growth of 2.1% from 2.3% in the prior quarter. Spending on goods increased by 1.1%, while spending on services decelerated to a gain of 2.6%.
A sharp decline in imports resulting in increasing net exports delivered almost a third of the quarter’s GDP gain. Government spending increased again at the same pace as the prior quarter. Gross private investment increased by 1.4% from inventories growing and residential construction declining. With the increase in Q4, real GDP was up 1.0% from a year ago, and 2022 rose 2.1%.
Consumer Spending Declines Again in December
Consumer spending growth slowed again in December, with a nominal decline of 0.2% following a downwardly revised 0.1% decline in November. Personal income growth also slowed to 0.2% from a downwardly revised 0.3% growth in November.
Employee compensation growth was unchanged at 0.3%. Government transfer payments were unchanged. Proprietors’ income increased by 0.3% after falling 0.1% in November. Spending on durable goods declined by 1.9% in December, spending on nondurable goods decreased by 1.0%, and spending on services increased by 0.5%. Spending on motor vehicles and parts declined 3.3%, following a 6.0% decline in November.
The personal savings rate increased to 3.4% from 2.9% in November.
The Personal Consumption Expenditure Index, the key gauge of inflation that the Fed follows, increased 0.1% in December, unchanged from November. According to the PCE, overall price inflation was down to 5.0% in December from a year ago, while the core inflation rate declined to 4.4% from 4.7% in November. Factoring in inflation, real spending was down 0.3% in December.
Surprisingly, New Home Sales Rise Month Over Month in December
New-home sales, which are based on new contracts signed on newly constructed homes, delivered another surprising increase in December. New home sales at an annualized pace of 616,000 were up 2.3% from November, which saw sales revised down substantially but down 26.6% from the year earlier. Compared to December 2019, new home sales were down 10.5%.
New-home inventory was unchanged from November but was up 18.5% from a year ago. New-home supply declined to 9.0 months, which is about 40% higher than what is considered normal. Even with the increase in new home sales in November, total home sales were down 1.0% for the month and down 33.1% from a year ago because existing home sales declined 1.5%. Pending home sales increased 2.5% in December when a small decline was expected. Like new home sales, pending home sales are based on new contracts.
Consumer Sentiment Mixed in January
The Consumer Sentiment Index from the University of Michigan increased 8.7% in January, driven primarily by improvement in the view of current conditions, which was up 15.2%. Consumers’ views of buying conditions for vehicles have improved to the best level since July 2021.
The daily index of consumer sentiment from Morning Consult has measured declining sentiment in January so far, as that index was down 2.5% for the month as of Friday, Jan. 27. Sentiment fell in January as the price of gasoline rose. The national average price was $3.51 per gallon as of Jan. 26.
Jobless Claims Drop to Lowest Level Since April 2022
Seasonally adjusted initial jobless claims declined by 6,000 to 186,000 for the week ending Jan. 21, which was the lowest weekly level since April. Non-seasonally adjusted initial claims fell by 64,000. With recent declines, the numbers are back to levels lower than before the pandemic began.
Continuing claims, representing people who previously filed and remain on traditional unemployment compensation, increased by 20,000 from the previous week, bringing the total up to 1.68 million as of the week ending Jan. 14. That level of continuing claims was 88,000 lower than before the pandemic.
The broadest measure of continuing claims increased by 42,000 to 1.94 million in the latest data, which lags the traditional number and is not seasonally adjusted. That total measure is up 316,000 over the last four weeks but is 167,000 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.
Jonathan Smoke is the chief economist at Cox Automotive.