U.S. GDP grew by 2.9% in the fourth quarter, beating expectations slightly but still down from Q3’s 3.2% print. 🔻
Analysts watch consumer spending closely, as it accounts for roughly 68% of GDP. It increased by 2.1% in Q4, down from 2.3% in Q3. Inventory also rose significantly, adding 1.5% to GDP. Government spending also buoyed the headline number, adding 0.64%.
Meanwhile, residential fixed investment continues to decline, with housing subtracting about 1.3% from GDP. Exports also fell by 1.3%.
The areas keeping the GDP number afloat remain vulnerable to the lagging impact of interest rate hikes. Additionally, there are signs consumers are using debt to keep their lifestyle amid rising prices. And bank earnings tell us that credit losses are beginning to rise. 💳
As a result, some analysts say today’s report shows that the U.S. economy remains vulnerable to more serious weakness in the second half of 2023.
Moving into the labor market, initial jobless claims fell to their lowest since April 2022 at 186,000. Continuing claims ticked up marginally but remained below their December highs. 🧑💼
Layoffs continue to spread, with chemical company Dow cutting 2,000 and software company SAP cutting 3,000 workers. IBM also cut 3,900 jobs yesterday as part of its planned asset sales. Meanwhile, Chipotle is gearing up to hire 15,000 restaurant workers ahead of its busy spring months.
At the aggregate level, the labor market remains historically strong. Below the surface remains the two distinct sides of the labor market that we’ve been writing about for months.
And sooner or later, ChatGPT will take all of our jobs anyway…right? That’s at least what BuzzFeed is partially betting on. 🤖
As for manufacturing activity, durable goods orders rose more than expected in December. The 5.6% jump came in well above the 2.4% forecast, but some concerns remain. Driving the strength was a 116% increase in aircraft orders. Meanwhile, demand for new cars and trucks rose by under 1%. 🏭
Excluding transportation, new orders fell for the third time since 2021. And business investment also dropped by 0.2%.
Signs of weakness in the manufacturing sector abound, with many suggesting that U.S. manufacturers are already in recession territory. The slowdown in new orders has caused them to reduce production. And if the economy continues to weaken then further cuts are on the way.
Lastly, new home sales indicated the housing market saw an uptick in activity for the third month in a row. New home sales rose 2.3% MoM in December, though it’s still down 26.6% YoY. The median house price was $442,100, up 7.8% YoY. 🏘️
Overall, the market took these headline numbers in stride despite concerns under the surface.
We’ll have to see what Friday’s PCE index and personal income/spending data say ahead of next week’s Fed meeting. 👀