Highlights
“Domestic production outperformed expectations with broad growth among the major components, especially personal spending.”
Summary
As inflation descends closer to typical levels with production, job growth and capital markets performing strongly, economists continued their predictions of a soft landing for the economy to come to fruition. In light of the data suggesting that runaway inflation has finally been curtailed, the Federal Reserve foreshadowed a gradual reversal of the hawkish policy that began in March 2022.
Domestic production outperformed expectations with broad growth among the major components, especially personal spending. Job growth also exceeded expectations with sustainable gains in nonfarm payrolls. Consumer sentiment continued its rebound from June 2022’s historic low as inflation worries ebbed. Investors’ anticipation of easing interest rates spurred capital markets to a 4th-quarter rally in 2023.
However, the housing market remains constrained by currently elevated interest rates and limited inventory. Home sales have been slowing since early 2023, and prices in major cities continue to rise, albeit at a decelerating pace.
Notwithstanding indications of upcoming monetary policy reversal and downward revisions to projections of future target rates, FOMC members’ projections of economic performance for 2024 and beyond changed little.
A multifactor indicator of economic strength, the Philadelphia Fed’s coincident index of economic activity in the U.S. rose 0.2% in December 2023 and 0.7% during the 4th quarter. For the quarter, coincident indexes increased in 25 states, decreased in 21 states, and remained unchanged in 4. Coincident indexes reflect unemployment, payroll employment, manufacturing hours, and wages and salaries.