Economic Outlook - December 2023
- Gross domestic product rose at an upwardly revised 5.2% annualized pace in the third quarter, the fastest in nearly two years. After a robust third quarter, the U.S. economy is widely expected to grow at a much slower rate in the final months of the year as pandemic savings dwindle and interest rates remain elevated. The most recent reading from the Fed’s “beige book” points to broad-based cooling in recent weeks suggesting that economic output may have peaked in the third quarter.
- The inflation narrative driving interest rates higher over the summer appears to be unwinding. The most recent reading from the Bureau of Labor Statistics on consumer prices were unchanged from the prior month as a drop in oil prices dragged down headline inflation while “core” inflation rose at the slowest annual pace since September 2021. The Consumer Price Index (CPI) in October showed prices rose 0% over the prior month and 3.2% over the prior year. This continues a recent trend of decelerating month over month comparisons and increases the probability that the Federal Reserve will hold off any changes to current monetary policy at their next meeting.
- U.S. existing home sales dropped to the lowest level in more than 13 years as the highest mortgage rates in two decades and a dearth of houses has driven buyers from the market. Existing home sales tumbled 4.1% to a seasonally adjusted rate of 3.79 million units, the lowest level since August 2010, when home sales were declining following the expiration of a government tax credit for homebuyers. The real estate market has borne the brunt of the U.S. central bank’s aggressive monetary policy. Real estate continues to be an area of concern for the U.S. consumer and a potential precursor to slower economic growth.
- The labor market appears to be near a turning point. Total nonfarm payroll employment increased by 150,000 in October. The Labor Department’s most recent report continues to show job growth; however, the pace of hiring has been slowing, as our economy has been adding an average of 258,000 jobs per month. Though unemployment remains low (currently under 4%) and wages are still rising at a firm pace, employers are increasingly scaling back hiring as the job market normalizes from its pandemic highs. We continue to believe that given structural labor supply considerations, the unemployment rate is unlikely to rise to a level as high as that typically associated with recessions.
Sources: Bloomberg, LLC., FactSet, U.S. Bureau of Labor Statistics, Reuters
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