Economic Momentum Grows as Year Draws to a Close
The latest data from the Labor Department suggests that the US economy is gaining momentum as the year comes to an end. The number of Americans filing new claims for unemployment benefits increased by a small margin last week. However, this was offset by positive indicators such as unexpected growth in retail sales and a rise in single-family housing starts and building permits to 1-1/2-year highs. As a result, economists have revised their growth estimates for the fourth quarter upwards. Additionally, inflation appears to be progressing toward the Federal Reserve’s target of 2%, further fueling optimism about the economy’s performance.
Optimistic Outlook for 2023
According to Christopher Rupkey, the chief economist at FWDBONDS, there is plenty to be optimistic about for the US economy, and next year is expected to be even better. Rupkey expects the Federal Reserve to ease its monetary policies now that inflation is moving in a favorable direction.
Unemployment Claims Increase Slightly
The latest weekly data from the Labor Department shows a marginal increase of 2,000 in initial claims for state unemployment benefits, reaching a seasonally adjusted 205,000 for the week ending December 16. However, unadjusted claims fell by 9,225 to 239,865 last week, with significant declines in California and Georgia more than offsetting a notable increase in Ohio. While holiday season volatility can affect the claims data, overall, the figures remain consistent with a relatively healthy labor market. This positive trend is expected to help the economy avoid a recession in the coming year.
Consumer Confidence on the Rise
A recent survey from the Conference Board revealed that consumers’ perception of job availability is the most positive it has been in five months, as of December. This further supports the notion of a robust labor market.
Continuing Claims Data to Provide Additional Insights
The upcoming release of data on the number of individuals receiving benefits after the initial week of aid, often used as a measure of hiring, may provide further clarity on the labor market’s performance in December. The latest report indicates a decrease of 1,000 in continuing claims to 1.865 million for the week ending December 9. It is worth noting that continuing claims have generally increased since mid-September, primarily due to challenges in adjusting the data for seasonal fluctuations following a significant surge in benefit filings during the early stages of the COVID-19 pandemic.
Revised GDP Figures Reflect Strong Expansion
According to the Bureau of Economic Analysis (BEA), the US economy experienced a robust growth rate of 4.9% in the third quarter. Although this figure is slightly lower than the previously reported 5.2% pace, it remains the strongest rate of expansion since Q4 2021. Notably, the growth rate exceeded the non-inflationary growth rate of around 1.8% that Fed officials consider ideal. The revision was primarily due to adjustments in consumer spending and inventory investment figures.
Consumer Spending and Core Inflation Figures Revised Downward
Consumer spending, accounting for approximately two-thirds of the US economic activity, had a growth rate of 3.1% in the third quarter, down from the previously estimated 3.6% pace. Moreover, the core personal consumption expenditures (PCE) price index, which excludes food and energy components, rose at a revised rate of 2.0% in the same period. While these figures signify a slight downward trend, they still indicate solid growth and reflect progress compared to earlier reports. Gus Faucher, the chief economist at PNC Financial, described this as remarkable progress, particularly given that core inflation was as high as 6% at the beginning of 2022.
Inventory Investment and Profits Show Positive Adjustments
The revised figures also indicate a decrease in private inventory investment to a rate of $77.8 billion, reflecting adjustments to stocks at general merchandise and other retail stores. In contrast, profits from current production increased by $108.7 billion in the third quarter, surpassing the previous estimate. Looking ahead, growth estimates for the fourth quarter range from 1.1% to 2.7%. It is expected that the growth rate will be lower due to a wider trade deficit and a slower pace of inventory building compared to the third quarter.
Manufacturing Remains a Challenge
While the recent data suggests overall positive economic growth, there are still challenges in the manufacturing sector. The Conference Board’s leading indicator declined in November, although at a slower pace. Matthew Martin, a US economist at Oxford Economics, remains cautiously optimistic, citing recent financial loosening and decreasing inflation as supportive factors for continued yet moderate growth in the coming year.