Saturday, January 20, 2024

Good signs all around for the economy as 2023 data wraps up.

The later half of the week gave us more positives to lean on with the US economy. First off, we saw consumers continuing to spend during the Holiday shopping season, showing that they had money to spend and weren't too worried about the spigot being turned off any time soon.

Retail sales increased 0.6% for the month, buoyed by a pickup in clothing and accessory stores as well as online nonstore businesses. The results were better than the 0.4% Dow Jones estimate.

Excluding autos, sales rose 0.4%, which also topped the 0.2% estimate.

On a year-over-year basis, retail sales ended 2023 up 5.6%. The numbers are not adjusted for inflation, so sales show that consumers are more than keeping up with an annual inflation rate of 3.4% as measured by the consumer price index. The CPI increased 0.3% in December, also lower than the retail sales increase.

Another measure of retail sales strength that excludes sales from auto dealers, building materials stores, gas stations, office suppliers, mobile homes and tobacco stores rose 0.8% for the month. The Commerce Department uses this so-called control group when computing gross domestic product.
And given that consumer spending is around 2/3 of overall GDP, that seems to portend a good number for Q4 in that stat when it gets its initial release at the end of the month.

Thursday also saw a series of promising bits of economic data.

And even that decline in housing starts isn't that bad, because it comes after a 10.8% jump in November, which was the highest number of starts since May, and December's rate of housing starts was the 3rd highest of the year, and the 2nd highest for single-family starts.

This continues an uptrend in 2023 that bucked the Federal Reserve-influenced rise in interest rates. It also combines with an increase in permits and completions that indicates more single-family homes should be up in 2024, which may help alleviate some of the concerns about affordability in housing that have been a drag for the last couple of years.

And also note the drop in new unemployment claims. That was the lowest we had seen since September 2022, and when you put together strong consumer spending and more single-family homes getting built, this headline from Friday doesn't seem that surprising. At least in a reality-based America.

The University of Michigan’s monthly consumer sentiment index rose 9.1 points to 78.8, the biggest monthly advance since 2005 and far exceeding expectations.

The news came after a similarly sharp rise in December. Joanne Hsu, University of Michigan’s director of surveys, said that over the last two months, sentiment has climbed a cumulative 29%, the largest two-month increase since 1991 as a recession ended.

“Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations,” said Hsu.

The rise was driven in large part by expectations that the rate of inflation will continue to decline. The survey found that consumers expect prices to climb at an annual rate of 2.9% over the next year, down from the 3.1% reported in December. Expectations about price rises over the next five to 10 years hit a four-month low of 2.8%.
We've been waiting a while for average Americans to figure out that the economy is in a great place, and that inflation is done as a significant economic concern. And as 2024 begins, it seems like that's finally setting in, and let's see if the improving feelings continue the strength we've seen in the last year.
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