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The Federal Reserve’s preferred underlying inflation gauge barely rose in November as the core Personal Consumption Expenditures (PCE) Price Index increased 0.1%. On a six-month annualized basis, core PCE rose 1.9%, the first time in three years that this measure registered a reading below the Fed’s 2.0% target. Last week’s 4.9% final reading of third-quarter U.S. GDP contrasts with the fourth-quarter GDP forecast of 1.2%. Economists predict slow growth in 2024 with the economy modestly advancing 1.2% and the Federal Reserve cutting overnight rates from 5.50% to 4.25% to boost consumption.
Durable goods orders were surprising, advancing 5.4% in November driven by a surge in transportation equipment. Without the planes and trains, durable goods increased 0.5%, which is about flat for the quarter when a revised downward revision of the October figure is considered.
The November jobs report showed an uptick in the pace of hiring and average hours worked, which are both primary drivers of personal income growth. In addition, personal income advanced 0.4% in November and the personal savings rate rose to 4.1% from 4.0%. Nevertheless, with excess demand for labor dissipating, wage growth is expected to slow, meaning expansion of personal income as a driver of consumption will be a missing component from the economy in early 2024.
On the housing front, the median price of a home fell 6.0% from a year ago, with purchases of new single-family homes slumping in November. However, this may represent a temporary setback for housing as mortgage rates fell below 7.0%. While the median home price may have fallen, housing starts reached a six-month high and homebuilder sentiment continued to rise.
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