Data released this week continue to demonstrate the U.S. economy's resilience. Holiday sales closed 2024 stronger than expected, small business optimism has rallied back to pre-pandemic levels and home builders have signaled greater confidence in the traffic of prospective buyers. The steady demand impulse has kept some pressure on inflation. The Consumer Price Index ended the year at 2.9% year-over-year, which is a minor improvement from its 3.1% rate in January 2024 and points to stalled progress on the road back to the Federal Reserve's 2% inflation target.
On a monthly basis, the headline CPI rose 0.4% in December on the wings of higher gasoline and food prices. Firm price growth in these essential items has strained lower-income households in particular. Excluding food and energy, the core CPI rose a tamer 0.2%. Vehicle prices continued to rise, but at a slower rate than in November, while prices for the remainder of core goods fell or were essentially flat over the month. Core services inflation remained solid as housing costs (owners' equivalent rent and primary rent) reverted to their recent trend after slowing sharply in November.
The CPI details, along with December's Producer Price Index, suggest the core PCE deflator rose 0.2% in the final month of 2024. If realized, that increase would leave the year-over-year change at 2.8%, down just three-tenths from where it started the year (chart). With the Federal Reserve's preferred gauge of inflation also showing stalled progress, and considering the potential inflationary impulse of policy changes from the incoming administration, the risks to the FOMC's price stability mandate have risen in recent months.
Meantime, the risks surrounding the maximum employment side of the mandate have subsided. Initial claims for unemployment insurance remain historically low. Nonfarm payroll growth surprised to the upside in December, and the unemployment rate unexpectedly fell to 4.1%. The net share of small businesses planning to hire in the next three months rose to 19% in December, which is the highest reading in nearly two years. We suspect the FOMC will feel comfortable maintaining a more restrictive stance of monetary policy this year, given the recent string of solid jobs data. As discussed in the Interest Rate Watch, we now look for only two 25 bps rate cuts in the second half of 2025 and expect the FOMC to hold at a target range of 3.75%-4.00% through 2026.
This Week's State Of The Economy - What Is Ahead? - 07 October 2020
Wells Fargo Economics & Financial Report / Oct 10, 2020
In the immediate fallout after the lockdowns in the early stages of this pandemic, there was a lot of discussion about the shape of the recovery.
This Week's State Of The Economy - What Is Ahead? - 20 January 2023
Wells Fargo Economics & Financial Report / Jan 20, 2023
The housing sector has borne the brunt of the Fed\'s efforts to slow the economy, and this week\'s data showed the industry continues to reel.
This Week's State Of The Economy - What Is Ahead? - 20 May 2022
Wells Fargo Economics & Financial Report / May 29, 2022
U.S. retail sales topped expectations in April, while industrial production also grew more rapidly than economists expected. Data on housing starts, home sales and homebuilder sentiment, however, showed tentative signs of cooling.
This Week's State Of The Economy - What Is Ahead? - 23 July 2021
Wells Fargo Economics & Financial Report / Jul 30, 2021
In the biggest financial news this week not connected to college football conference realignment, July\'s NAHB Housing Market Index slipped one point to 80.
This Week's State Of The Economy - What Is Ahead? - 23 September 2020
Wells Fargo Economics & Financial Report / Sep 22, 2020
European activity is surging. Germany and Italy are leading the way, but France is close behind despite an ongoing rise in cases. The Google data are a bit outdated, but are hard to reconcile with today’s weak Eurozone services PMI figures.
This Week's State Of The Economy - What Is Ahead? - 13 March 2020
Wells Fargo Economics & Financial Report / Mar 14, 2020
Financial conditions tightened sharply this week as concerns over the coronavirus and the economic fallout of containment efforts mounted.
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? - 02 July 2021
Wells Fargo Economics & Financial Report / Jul 13, 2021
We added 850,00 jobs in June, but much of that was State governments school districts in some parts of the Country reopening just in time for summer break.
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.
This Week's State Of The Economy - What Is Ahead? - 08 November 2019
Wells Fargo Economics & Financial Report / Nov 09, 2019
Optimism soared this week on hopes of a forthcoming trade deal, as equity markets hit all-time highs and the yield curve steepened.