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GDP details show waning momentum for 2023: Weekly Economic Review & Outlook

January 30, 2023
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Headline real GDP growth remained solid in the fourth quarter underpinning a rebound in the second half of 2022 that more than recovered the decline recorded in the first half of the year. Unfortunately, the underlying details of the GDP report were less impressive, showing that consumer and business spending was slowing heading into the new year. In positive news, the PCE price data for December were encouraging, but inflation remains far above the Fed’s 2 percent target.

Key Takeaways:

What we learned last week: (pg. 1)

Core GDP continues to trend down

Growth in core GDP fell in the fourth quarter to a level typically only seen in or around recessions. Hear more in our podcast “GDP growth ended 2022 with an unhealthy mix (15 min)”.

Core inflation falls for a third straight month

Core PCE fell in December to its lowest level in more than a year, led by a sharp decline in core goods prices.

What we’re watching this week: (pg. 2)

February 1: Slight decline for job openings but the labor market remains tight

In November, the JOLTS report showed little change in the large number of job openings, with a decline of just 54,000 to 10.458 million. The job openings-to-unemployed ratio, a key metric of labor tightness, increased to 1.74 in November from 1.73, indicating that demand for labor remained very strong. The number of job openings should continue to gradually decline in December, showing some signs of loosening in some sectors including finance and insurance which recorded a decrease of 75,000 in openings in November. The quits rate, which increased to 2.7 percent in November, should remain elevated as workers switch jobs for higher wages.

February 1 & 3: ISM indices likely to stay in contractionary territory

New orders, a leading indicator for demand and production, dropped steeply in December for both services and manufacturing, reflecting a sharp retrenchment in customer demand. Moreover, the drop supports signs of an unwanted buildup in inventories for firms. The ISM services index plunged in December to join manufacturing in contraction territory. Both indexes are expected to remain below the 50-mark in January as readings of widespread weakness build across the business sector. Prices paid, which have weakened sharply amid supply chain improvements, should still show broadly lower costs. The top six manufacturing industries did not report price increases in December signaling that cooler input costs are continuing to ease price pressures for consumer goods inflation.

February 3: Solid hiring expected again in January with strong wage growth

The labor market continues to be strong, though we forecast a moderation in net new jobs created in January to 175,000 following a 223,000 advance in December. Despite the low level of claims and employers generally holding on to workers, companies are being more cautious to hire new employees given slowing economic activity. Gains in hiring should continue to be led by the service sector including education and health services and leisure and hospitality, the latter of which is still recovering from its pandemic-related fall. The unemployment rate should rise just 0.1 percentage point to 3.6 percent, signaling the labor market remains incredibly tight. Average hourly earnings likely increased another 0.3 percent in January, placing the year-over-year rate at 4.3 percent, down from 4.6 percent in December. This is a welcomed development, but wage growth still runs faster than its pre-pandemic pace of around 3.0 percent.

Weekly Economic Review & Outlook 1.30.23