It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let’s take a look at this week’s big headlines, starting with what was by far the biggest report of the week:
The Most Important Report: GDP
The Commerce Department announced that fourth-quarter GDP grew at an annual pace of 3.2%. And the details were quite interesting. Business spending rose at a 3.8% pace, while consumer spending rose at a 3.3% pace in the fourth quarter, which was higher than previously anticipated. The primary catalyst for GDP growth was that exports surged 11.4% in the fourth quarter, while imports only grow 0.9%. It is increasingly obvious that the Fed can continue to taper due to more robust GDP growth. In the second half of 2013, GDP grew at an annual pace of 3.7%, up from a 1.8% annual pace in the first six months of 2013. In addition, it’s clear that the domestic energy boom is helping to dramatically improve the U.S. trade balance. Interestingly, government spending contracted 12.6% in the fourth quarter, due partially to the federal government shutdown. Overall, government spending was a 0.9% negative drag on GDP growth, so had government spending been unchanged, fourth-quarter GDP would have grown at a 4.1% annual pace.
The Most Shocking Report: Durable Goods Orders
In December, durable goods orders declined 4.3%, due partially to a 17.5% decline in commercial aircraft orders and a 5.8% decline in auto parts. Excluding aircraft and autos, orders still declined 1.6% in December and other major categories were weak. Overall, the December durable goods report was a big surprise and the only encouraging news was that severe winter weather might have negatively impacted the durable goods report a bit. Naturally, the severe winter weather is persisting this month as the folks in the South experienced snow this week. It will be interesting to see if the severe winter weather will continue to disrupt the January payroll report that will be released next Friday.
The Silver Lining Report: New Home Sales
In December, sales of new homes slipped 7% to a seasonally adjusted annual rate of 414,000, down from 464,000 in November. This was below economists’ consensus expectation of 455,000. Despite this disappointing number, for all of 2013, new home sales rose 4.5% and averaged 428,000 per month, which is the best sales pace since 2008. Median new home prices in December were $265,800 and rose 8.4% in 2013, due largely to tight supplies. The inventory of new homes in December climbed to five months, up from 4.7 months in November, but despite this increase, the overall inventory of new homes remains relatively tight, which should promote further price appreciation.
The Contradictory Reports: Consumer Confidence
In January, the Conference Board’s consumer confidence index climbed to 80.7 from a revised 77.5 in December that was weaker than initially estimated. This was a better reading than expected–economists had estimated a reading of 77.5. This was a relatively solid report and represented the highest reading in five months. In addition, consumer expectations for the economy and earnings both improved, but they were somewhat mixed when it came to the outlook for jobs. However, the Conference Board’s reading was quite different from what the University of Michigan found last month, which I’ll discuss next.
In January, the final reading of University of Michigan’s consumer sentiment index dropped to 81.2 from 82.5 in December. This was modestly better than expected, as the consensus estimate called for a reading of 80.4. The Michigan survey was somewhat at odds with the Conference Board’s index, which increased in January for the second straight month. However, both indices have shown improvement since the government shutdown in October, and it’s clear that opinions on the state of the U.S. economy remain mixed.
The Most Encouraging Report: Personal Income
In December, personal income came in unchanged but personal spending ticked up 0.4%. So income grew more slowly than expected while spending growth was higher than forecast, as economists had predicted both measures to grow 0.2%. Because spending grew at a faster pace than income, the savings rate dipped to 3.9%, hitting its lowest levels since January of last year. The key takeaway is that consumer spending continued to climb–it was the primary driver of GDP in the second half of the year–and the fact that spending continues to pick up is one reason that the Fed decided to raise its taper amount.
Have a nice weekend,