U.S. economy expands at 2.9% annual rate in fourth quarter

The U.S. economy grew at an annualized 2.9% rate in the final months of 2022, the Commerce Department said on Thursday.

Why it matters:

Economists are bracing for a significant slowdown in economic activity as the Federal Reserve’s interest rates hikes take hold, but that certainly wasn’t the case in the final months of last year.

  • Economists expected the Gross Domestic Product figures to show the economy grew at a 2.6% annualized rate last quarter, after expanding at a 3.2% pace in the prior quarter.

Details:

Consumer spending and businesses built up private inventories gave GDP the biggest boost. Among the biggest drags: fixed investment, a category that includes housing.

By the numbers:

Over the calendar year, GDP grew by 2.1% in 2022 — a decent pace, especially considering the historically aggressive rate hikes by the Federal Reserve that sought to restrain economic activity to contain inflation.

  • Those rate hikes hit the housing sector particularly hard, which dragged down overall growth earlier last year.

Catch up quick:

The first half of 2022 was dogged by fears that the economy had entered a recession, after back-to-back quarters of contractions. But by the second half of the year, the economy had returned to growth mode.

  • The growth over 2022 was an expected slowdown from the 5.9% achieved in 2021, when the economy bounced back from the pandemic shock.

America’s inflation turnaround

It may be time to update your inflation narrative.

The ultra-hot readings that defined the first half of 2022 appear to be firmly in the rearview mirror, improving the odds that price pressures can dissipate further without excessive economic pain.

  • That’s the key takeaway from the December Consumer Price Index released this morning, which confirmed notably cooler inflation as the year came to a close.

Why it matters: 

The nation’s inflation problem isn’t over, but so far inflation is slowing while the job market is still healthy, an enviable combination.

  • As Princeton economist Alan Blinder put it in an op-ed last week, inflation was “vastly lower” in the second half of 2022 than the first; yet, “hardly anyone seems to have noticed.”

By the numbers: 

In the final three months of 2022, core inflation (which excludes food and fuel costs) came in at an annualized 3.1% — higher than the Fed aims for, but hardly crisis levels. In the second quarter of the year, that number was 7.9%.

  • It’s a stunning decline, occurring alongside a labor market that by nearly all measures is still flourishing. Just this morning, the Labor Department announced that jobless claims fell to an ultra-low 205,000 last week.

State of play: 

Grocery prices rose 1.1% in the final three months of the year, an uncomfortably high rate, but not as extreme as the rates seen earlier in 2022.

  • Gasoline prices, pushed up by Russia’s invasion of Ukraine, were once the crucial reason why inflation was rising. In recent months, the opposite has been true: December pump prices slid 9.4%, helping drag the overall index into negative territory.
  • Disinflation was at work for many other goods, including used cars (-2.5%) and new vehicles (-0.1%) where prices have reversed, helped by easing supply chain bottlenecks.
  • Shelter costs pushed inflation upward, surging 0.8% in December. But private-sector data points to rents on new leases falling in recent months, which would only filter into the CPI data over time. That makes for a more benign inflation outlook in 2023.

What to watch: 

That’s not to say there aren’t risks ahead. The war in Ukraine is ongoing, and another energy price shock could occur.

  • The Fed has also focused in on the services sector, where price increases have slowed from last summer but remain frothy. The risk is that business costs associated with the still-tight labor market (like higher wages) will pass through to prices for consumers.

The bottom line: 

Inflation will still be a worry in 2023, but much less so than it seemed a few months ago.

Consumer prices fell in December as inflation continues to cool

U.S. consumers got a reprieve from soaring costs in December: the Consumer Price Index declined on a monthly basis, the first drop since last summer as falling prices for items including gasoline and used cars dragged the overall index down.

By the numbers:

The index, which captures price changes across a basket of consumer goods and services, fell 0.1%, following an increase by the same amount in November. Over the past 12 months ending in December, the index is up 6.5%, falling from 7.1% through November.

  • Core CPI, which excludes food and fuel costs, rose by 0.3% last month. Over the last 12 months through December, the index rose 5.7%. In November, those figures were 0.2% and 6%, respectively.

Why it matters:

The hot inflation that persisted through much of last year continues to show signs of receding — offering at least some relief for shoppers, the White House and the Federal Reserve, though some underlying inflation pressure remains.

Where it stands:

The data caps a year in which consumer prices rose rapidly, though the pace of cost increases began to slow in the final months of the year.

  • As consumers shifted spending and supply chains began to heal, price increases for a range of goods have cooled or, in some cases, costs have fallen outright.

Between the lines:

The Federal Reserve, which has been raising interest rates aggressively to tame inflation, is watching the services sector closely, where inflation can be more challenging to stamp out.

  • A sub-index measuring price moves within the services category (excluding housing) accelerated by 0.4%, after two straight months of cooler readings
  • Still, in the 12 months through December, this sub-index is up 7.4% (compared to 7.3% in November).

A superb jobs report

We really liked what we saw in the December jobs report, which made us more optimistic about the possibility the 2023 economy will hold up reasonably well. More details below.

  • Situational awareness: In less optimistic news, the Institute for Supply Management’s survey of service industry activity plunged in December, to 49.6% — down from 56.5% in November. This is the first time the index has been in negative territory since May 2020.

The U.S. labor market is extraordinarily strong, despite gloom-and-doom economic forecasts and high-profile layoffs.

  • That is the takeaway from December numbers, out this morning, that were outstanding in subtle and not-so-subtle ways.

Why it matters: If America’s economy is going to come in for a soft-landing — inflation dissipating without mass unemployment — you would expect to see numbers that look a lot like last month’s.

  • The economy continues to add a healthy number of new jobs, though the pace is moderating. Wages are rising, but not so quickly as to alarm economic policymakers. And more workers are entering the labor force, which — if sustained — could heal labor shortages.
  • The data has positive developments both for American workers — who continue to have abundant job opportunities — and for Fed officials seeking evidence that their inflation-fighting efforts are starting to cool job creation and wage growth to more sustainable rates.

The headline unemployment rate, at 3.5%, matched its lowest levels in decades. If you extend the calculation out a couple more decimal places, University of Michigan economist Justin Wolfers points out, it was 3.468%, the lowest since 1969!

  • It fell even as the labor force expanded by 439,000 workers, a welcome development on the supply front after months of little progress. More Americans working means fewer of the labor shortages that have contributed to inflation.
  • An additional 717,000 Americans reported being employed, helping resolve what had been a puzzling disconnect between different sources of labor market data — and in a positive direction.
  • A stunningly low jobless rate might raise some alarm bells at the Fed over the possibility the job market is too tight, and that this could fuel inflation. But the labor force growth and benign wage data (more on that below) may take the edge off those fears.

By the numbers: Employers are still hiring at a rapid pace — 223,000 in December — but slowing from early last year’s unsustainable numbers.

  • The economy has added roughly 247,000 jobs per month on average in the last three months, slower than the 366,000 in the prior three-month stretch, and less than half of the 539,000 jobs added each month in Q1 2022.
  • Evidence of tech layoffs did show up somewhat in the report, with the information sector shedding 5,000 jobs. Temporary help services employment fell by 35,000, the clearest sign employers are paring back demand for workers.
  • But most other sectors, including leisure and hospitality, construction and health care, continued to add jobs.

The bottom line: If we keep getting numbers like these, 2023 may not be such a rough year for workers after all.

Inflation cools in November for the second-straight month

Following a cooler-than-expected inflation reading in October, consumer price gains slowed even further last month: the Consumer Price Index rose 7.1% in the year ending in November, down from 7.7% the prior month, the Labor Department said on Tuesday.

Why it matters: Inflation is still way too high, but the data offers some hope that it can ease alongside a still-healthy economy.

By the numbers: On a monthly basis, CPI rose 0.1%, slower than the 0.4% in October.

  • Core CPI, which strips out volatile food and energy costs, also continued to ease. On a monthly basis, it rose 0.2% — up 6% over the 12 months ending in November.
  • In October, those figures were 0.3% and 6.3%, respectively.

Where it stands: The Federal Reserve has raced to try to get inflation under control, raising interest rates at a historic clip — moves that risk throwing the economy into a recession.

  • Officials will likely raise rates by a smaller (but still historically huge) amount following a two-day policy meeting that concludes on Wednesday.
  • That will come after surprisingly cooler inflation readings, though officials have warned that its war on inflation is far from over.

U.S. economy adds 263,000 jobs in November

The jobs market stayed strong last month: Employers added 263,000 jobs, while the unemployment rate held at 3.7%, near the lowest level in a half-century, the Labor Department said on Friday.

Why it matters: The figures are the latest signal of a roaring labor market that continues to defy fears of a recession.

  • November’s payroll gains are above the addition of 200,000 jobs that economists had expected.

By the numbers: Job growth last month was slightly slower than the 284,000, added in October, which was revised up by 23,000. In September, the economy added 269,000 jobs, 46,000 fewer than initially estimated.

  • Average hourly earnings, a measure of wage growth, rose by 0.6% in November — faster than the prior month, when earnings rose by 0.5%. Over the past year ending in November, average hourly earnings increased by 5.1%.
  • The share of people working or looking for work, known as the labor force participation rate, ticked down to 62.1%, compared to 62.2% in October.

The backdrop: Economists have been bracing for cracks in the labor market that have yet to appear.

  • It has been an ugly stretch for layoffs in a handful of sectors like technology, with large-scale job cuts announced at MetaAmazon and Twitter.

But overall, the booming job market has continued for workers, even in the face of ultra-aggressive efforts by the Federal Reserve to try to cool demand for labor to help put a lid on inflation.

  • Last month, Fed chair Jerome Powell said that employers bidding up wages to attract workers is not “the principal story of why prices are going up.”
  • Still, the labor market may point to clues about how inflation will evolve in certain categories, including industries within the services sector where wages make up the biggest costs for businesses, Powell said on Wednesday.

Inflation cools more than expected in October

The Consumer Price Index cooled more than expected in October: it rose 7.7% from a year earlier, down from 8.2% the prior month, the Labor Department said on Thursday.

Why it matters: Inflation still remains painfully high, but a bigger-than-expected easing in price pressures for items like used cars and apparel helped pull the overall index down.

By the numbers: On a monthly basis, CPI rose 0.4%, the same pace as September.

  • Core CPI, a closely watched gauge that strips out volatile food and energy costs, eased in October. On a monthly basis, it rose 0.3% — up 6.3% from a year ago.
  • In September, those figures were 0.6% and 6.6%, respectively.

Catch up quick: Soaring costs have eroded many Americans’ wage gains, souring their view on the economy that has otherwise held up.

  • Supply chain problems have led to shortages of vehicles and other consumer goods, which pushed up prices. Russia’s invasion of Ukraine has created a volatile backdrop for energy costs.
  • Those supply chain pressures have eased and consumers have dialed back demand for goods, pushing prices down. But costs for services have raced ahead.

Where it stands: The Fed has raced to try to get inflation under control, raising interest rates at a historic clip.

  • In recent months, inflation data has surprised to the upside. That’s kept officials on an aggressive path to slow the economy down, with the hope inflation will follow suit. Those moves have risked throwing the economy into a recession.

U.S. economy adds 261,000 jobs in October as labor market stays solid

https://www.axios.com/2022/11/04/october-job-report-2022-release

The labor market remained solid in October: the U.S. economy added 261,000 jobs, while the unemployment rate rose to 3.7% from 3.5%, the government said on Friday.

Why it matters: The last major economic report before the midterm elections shows that while jobs growth has slowed, employers continue to add workers at a robust pace as the labor market defies fears of a recession.

Driving the news: October’s jobs gains were above the 205,000 payrolls economists expected. It’s a slightly slower pace than the 315,000 jobs added in September, which was revised higher by 52,000.

  • Average hourly earnings, a proxy for wage growth, rose by 0.4% in October — a bit faster than the prior month, when wages grew 0.3%.
  • The share of people working or looking for work, known as the labor force participation rate, was 62.2%, a tick below the 62.3% in September.

The backdrop: The Federal Reserve this year has raised interest rates at historically rapid pace in an effort to slow the economy and, in turn, beat back soaring inflation. Many economists warn that the U.S. will soon enter a recession. Still, the labor market has chugged along.

  • Layoffs are being reported in a handful of sectors, including technology. But a range of job market indicators have suggested that, generally, employers are hungry for workers and trying to hold on to staff.

That is worrisome for the Fed, which fears the too-hot labor market will stoke inflation. But, on the flip side, it’s been great for American workers — though the booming job market has been coupled with decades-high inflation that’s eaten away at wage gains.

  • The economy is a top issue for voters in next week’s midterm elections.

U.S. economy returned to growth in Q3

The U.S. economy expanded at a 2.6% annual rate in the third quarter, ending the streak of back-to-back contractions that raised fears the country had entered a recession.

Why it matters: Gross domestic product got a boost from trade dynamics, but the underlying details — including weaker housing and decelerating consumer spending — point to an economy that’s slowing.

  • The first estimate of GDP, released by the Commerce Department on Thursday, will be revised in the coming months as the government gets more complete data.
  • The report comes on the heels of negative GDP growth during the first half of the year. In the January through March period, the economy contracted at a 1.6% annual rate. In the second quarter, the economy shrank at a 0.6% annualized pace.

Between the lines: The latest GDP report is among the final major economic data releases before the midterm elections, where voters have ranked the economy as a critical issue.

  • The labor market is solid, with the unemployment rate at the lowest level in over 50 years. But soaring inflation has eaten away at Americans’ wage gains.

The backdrop: The Federal Reserve is trying to engineer an economic slowdown in a bid to crush high inflation. It has swiftly raised borrowing costs five times this year, with another big increase likely ahead at its upcoming policy meeting next week.

What they’re saying: “For months, doomsayers have been arguing that the US economy is in a recession and Congressional Republicans have been rooting for a downturn,” President Biden said in a statement. “But today we got further evidence that our economic recovery is continuing to power forward.”

Inflation drops to zero in July due to falling gas prices

Consumer prices were unchanged in July, as plunging prices for gasoline dragged the Consumer Price Index down to zero. Core inflation, which excludes energy and food, rose only 0.3%, below what analysts expected.

Driving the news: The Labor Department reported that overall consumer prices rose 0% last month, and are up 8.5% over the past year. That compares to a 9.1% year-over-year reported in June.

Why it matters: Falling gasoline prices are clearly giving American consumers some inflation relief, and the broader inflation picture was more favorable in July than economists had expected.

By the numbers: Gasoline prices fell 7.7% in July, dragging down headline inflation. Other items with falling prices included used cars and trucks (-0.4%) and airfares (down 7.8%).

  • But rents kept rising, a major factor in stubbornly high underlying inflation. Renters faced a 0.7% rise in costs.

What’s next: The Federal Reserve has indicated it intends to keep raising interest rates until there is clear evidence inflation is waning. After two straight months of extremely hot inflation readings, this report will be welcome news.