The U.S. data this week signaled that the economic expansion remains intact even as inflation continues to slow. The personal income and spending data for October showed that real household consumption growth remained solid, albeit not quite as strong as it was in the third quarter. Inflation-adjusted consumption growth in October was fueled by higher spending on services (+0.2%) and nondurable goods (+0.3%), while spending on durable goods declined by 0.3%. Real GDP growth in Q3 was revised up from 4.9% in the first release to an even-stronger 5.2% in the second release. A slowdown in Q4 from such a blistering pace is all but assured, but the initial consumer spending data for the quarter suggest that it will be a moderation rather than a nosedive.
The October reading of the PCE deflator confirmed what the October CPI data showed a few weeks ago: Inflation continued its descent in the month. The headline PCE deflator was unchanged in October and up 3.0% from one year ago. Excluding food and energy, prices increased 0.2% in October and 3.5% year-over-year. These year-ago rates of headline and core PCE inflation were the lowest since March 2021 and April 2021, respectively. The FOMC is not yet ready to declare mission accomplished in its inflation fight. Despite the slowdown, price growth is still above the central bank's 2% target, and policymakers want to feel confident that this inflation pace is sustained over time. That said, the deceleration in prices bodes well for the widening path to a soft landing for the U.S. economy.
It is important to remember that slowing inflation still means that prices are rising, just at a slower rate. Data released this week showed that this dynamic is also playing out in the housing market. The S&P CoreLogic Case-Shiller Home Price Index rose 0.7% in September and is up 3.9% compared to one year ago. This is fairly close to the pace that prevailed in 2018-2019 and marks a notable slowdown from September 2021 and 2022, when home prices were up 19.1% and 10.5% year-over-year, respectively. Elevated mortgage rates have clearly helped induce the slowdown, but limited inventory for sale and a still-solid labor market have kept prices from outright declining in most parts of the country. Still-solid demand and limited inventory have kept new home sales buoyed despite the surge in mortgage rates. New home sales fell 5.6% in October but are still running at roughly the same pace that prevailed in 2019 when mortgage rates were much lower.
High interest rates also continue to weigh on the manufacturing sector. The ISM manufacturing index for November came in at 46.7, matching October's number. A reading below 50 is consistent with a manufacturing sector that is generally contracting. Among the subcomponents of the index, the employment and current production measures weakened relative to October, while new orders perked up somewhat. Overall, the ISM manufacturing index is near the weakest levels seen over the past 25 years outside the 2001 and 2008-2009 recessions. The prospects for a soft landing for the U.S. economy are better today than they were a year ago, but they are far from assured.
This Week's State Of The Economy - What Is Ahead? - 10 November 2023
Wells Fargo Economics & Financial Report / Nov 16, 2023
Sometimes, the impact of higher rates is quite obvious, such as the series of bank failures that occurred earlier this year.
This Week's State Of The Economy - What Is Ahead? - 03 April 2020
Wells Fargo Economics & Financial Report / Apr 04, 2020
Efforts to contain the virus are leading to millions of job losses and it’s likely only a matter of time before a majority of economic data reveal unprecedented declines.
This Week's State Of The Economy - What Is Ahead? - 21 February 2020
Wells Fargo Economics & Financial Report / Feb 22, 2020
Minutes from the January 28-29 FOMC meeting indicate the coronavirus will not push the Fed to cut interest rates, and for the most part housing and manufacturing survey data this week supported that view.
This Week's State Of The Economy - What Is Ahead? - 15 December 2023
Wells Fargo Economics & Financial Report / Dec 21, 2023
core CPI remained elevated in November at a 4.0% annual rate, a string of slower monthly prints suggests that disinflation has more room to run.
This Week's State Of The Economy - What Is Ahead? - 06 November 2020
Wells Fargo Economics & Financial Report / Nov 10, 2020
As of this writing, the outcome of the U.S. presidential election is undecided. Joe Biden, however, appears likely to become president based off of his growing lead in several key states.
This Week's State Of The Economy - What Is Ahead? - 25 October 2019
Wells Fargo Economics & Financial Report / Oct 26, 2019
Sales of existing homes fell 2.2% to a 5.38 million-unit pace in September, but sales and prices were still up enough in the quarter that they will add solidly to Q3 GDP growth.
This Week's State Of The Economy - What Is Ahead? - 18 September 2020
Wells Fargo Economics & Financial Report / Sep 15, 2020
The details were generally more favorable. The retail sectors hurt most by the pandemic saw gains in August, factory output is growing and soaring homebuilder confidence suggests soft construction data this week may be transitory.
This Week's State Of The Economy - What Is Ahead? - 05 August 2022
Wells Fargo Economics & Financial Report / Aug 08, 2022
The Bureau of Labor Statistics reported this morning that nonfarm payrolls increased 528,000 for the month of July, easily topping estimates, lowering the unemployment rate to 3.5%.
This Week's State Of The Economy - What Is Ahead? - 01 March 2024
Wells Fargo Economics & Financial Report / Mar 05, 2024
Economic data were downbeat this week, as downward revisions took some of the shine out of the marquee headline numbers. Despite the somewhat weak start to Q1, economic growth continues to trek along.
This Week's State Of The Economy - What Is Ahead? - 20 November 2020
Wells Fargo Economics & Financial Report / Nov 24, 2020
The international economic news over the past week has been somewhat mixed. On the positive side, China’s October data showed ongoing growth in manufacturing and firming retail and service sector activity.
