U.S. Fourth Quarter Grows at 3.3% on an Annualized Basis… Not counting the pandemic, the third quarter of 2023 at 4.9% and the fourth quarter at 3.3% were the strongest back-to-back quarters since 2014.
What it means— All street economists expected 2.0% growth and the Atlanta Federal Reserve GDPNow model expected 2.4% growth, so everyone missed it. Consumers might have grumbled as they dealt with higher prices, but they still spent more than they did in 2023. Business investment was up 2.1%, so private businesses were doing their part. With housing in the deep freeze, we wonder if money that would have been earmarked for a downpayment was used to buy gifts during the holidays. We know savings dipped, but there’s no way to know how much without asking people.
While strong GDP growth at the end of the year is interesting, consumers aren’t showing any signs of slowing down at the beginning of 2024. The continued story of growth could give the Fed the cover it wants to keep rates higher for longer. That will give investors something to think about as we get close to the Fed meeting and monetary policy statement next week.
New Home Sales Jumped 8% as Mortgage Rates Fell Below 7%… New home sales rose to an annualized rate of 664,000 in December from 615,000 in November and were up 4.4% over last year.
What it means— And in other news, the sun rose in the east before setting in the west. After mortgage rates jumped to 8% in October, it’s not surprising that sales increased after mortgage rates dipped below 7%. But don’t get too comfortable with these numbers. December is a lousy data point because so few sales happen that month and the data are seasonally adjusted. We want to see a three-month trend. So far, both existing-home and new-home sales remain modest. In December, the median sale price of a new home fell slightly from $426,000 to $413,000 – the lowest since October 2021. That just shows that builders are focusing on the part of the market that’s in motion. We want to see mortgage rates settle near 6%. With more time, existing homeowners will be enticed, or even induced, to sell for personal reasons, like changing jobs or changing circumstances.
Personal Consumption Expenditures Index Rose 0.2% in December and 2.6% for the Year… This brings the PCE closer to the Fed’s preferred 2.0% rate.
What it means— Well, we’ve done it. As consumers, we have transitioned from what we want to what we can afford, leaving behind some of our standard of living. Remember that the PCE quickly substitutes goods when tallying how we spend money, so when we buy cheaper stuff, like store-brand cereal instead of General Mills, the PCE fades. We’re not sure we’d call that a victory, but the central bankers like it.
While slowly improving, the PCE index has been stuck in a six month trend. This leaves investors on pins and needles as they wait for the Fed’s Monetary Policy Statement and press conference on Wednesday. If Chair Powell remains consistent, he will imply that there will be two or three rate cuts this year, not four or ﬁve, which would send the markets into a tizzy… for a few minutes. We’re still waiting for the yield curve to rebalance and mortgages to ease lower.
Toyota Chairman Akio Toyoda said EVs, at Best, Eventually Will Be 30% of Market Share… Toyoda recently was pushed out as CEO because other board members wanted a greater presence in EVs.
What it means— Last year’s slowing EV sales, even with big price cuts, make it look like Akio Toyoda is correct. The namesake heir of one of the world’s car manufacturers never got onto the EV bandwagon because of range and cost issues. Instead, Toyoda championed plug-in hybrid vehicles. Such models are selling well, but they remain expensive to buy and repair. Internal combustion engine vehicles, including motorcycles, are cheap to own and repair, which makes them coveted in emerging nations. Hopeful EV startup companies have collapsed with weakening demand and the declining willingness of investors to commit more money.
Chinese Man Disqualiﬁed From Marathon for Chain Smoking Throughout the Race… Uncle Chen, as he is called, chain smoked while he ran the Xiamen Marathon, just over 26 miles. He ﬁnished in 3:28 minutes. His ﬁnish was ﬁve minutes slower than his ﬁnish in 2022, but it still put him just under the top third of runners in the race. Uncle Chen ﬁnished the 2018 Guangzhou Marathon in three hours and 36 minutes (3:36) and the 2019 Guangzhou competition in 3:32. He smokes constantly throughout races, but last year the Chinese Athletics Association added a new clause into the rules and regulations, under article 2.12. The rule now states, “Uncivilized behavior from runners such as open defecation, smoking, or trampling ﬂower beds or green spaces that affect the race and the safety of other runners will result in disqualiﬁcation.” Instead, they should have created another category of runners, those who can ﬁnish the run while chain-smoking. The man deserves a trophy for stamina.
Data supplied by HS Dent Research
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