NAM: Monday Economic Report
The U.S. economy grew 4.0% at the annual rate in the fourth quarter—a reading that was weaker than expected as consumer spending on goods was relatively flat with COVID-19 cases on the rise and renewed restrictions placed in many areas. Residential and nonresidential business spending, inventories and service-sector consumption were bright spots.
Real GDP shrank 3.5% in 2020, the largest annual decline in economic activity since 1946. The U.S. economy is expected to rebound in 2021, especially as more Americans get vaccinated and market participants resume some semblance of normalcy in their actions. The current forecast is for 4.8% growth in 2021.
Personal consumption expenditures declined 0.2% in December, suggesting that Americans were more hesitant in their spending at year’s end, particularly with rising COVID-19 cases and restrictions in many markets. The saving rate continued to be highly elevated at 13.7% in December. Yet, over the past year, personal spending fell largely on reduced service-sector spending, not goods.
The consumer confidence data for January provided mixed results, but both surveys reflected a lessened assessment of current economic conditions. Encouragingly, respondents felt more optimistic about better conditions over the coming months.
New orders for durable goods rose 0.2% in December. Overall, the durable goods sector has rebounded solidly following steep declines in activity last spring due to the COVID-19 pandemic. On a year-over-year basis, new durable goods orders have grown 1.4% since December 2019, or a relatively strong 6.5% increase with transportation equipment excluded.
The Dallas, Kansas City and Richmond Federal Reserve Banks each reported rising manufacturing activity in January, and survey respondents remained upbeat in their outlook for the next six months. At the same time, raw material costs escalated sharply, particularly with lingering supply chain constraints in the market.
The Federal Reserve kept short-term interest rates unchanged, as expected, but also noted, “The path of the economy will depend significantly on the course of the virus, including progress on vaccinations.” The Federal Open Market Committee will reevaluate its monetary policy stance based on incoming data, but it is widely expected to keep interest rates unchanged for at least all of 2021.
The PCE deflator rose 0.4% in December. It increased 1.3% year-over-year, and core inflation, which excludes food and energy costs, has increased 1.5% over the past 12 months. Despite higher costs recently, the core PCE deflator has remained below 2% for 25 consecutive months.
New single-family home sales rose 1.6% at the annual rate in December, with activity continuing to be buoyed by mortgage rates that are near historic lows. Over the past 12 months, new single-family home sales have jumped 15.2%, but inventories remain very low.