U.S. GDP Growth Cools; Jobless Claims Point to Still-Tight Labor Market; Consumer Spending, Inflation Data Due Today By James Christie
Good day. U.S. growth in the fourth quarter slipped from the third quarter, capping a year of economic slowdown, which in part reflected a return to a more normal pace of growth after output surged amid business reopenings, fiscal stimulus and a waning pandemic in 2021. Now, many economists are concerned about the possibility of a recession this year, worried the Federal Reserve's efforts to curb inflation could trigger broad spending cutbacks and job losses, instead of a so-called soft landing for the economy. Fed officials have said they still have work to do to lower inflation, but also have indicated they expect to raise interest rates more slowly than last year's aggressive pace. We should get a sense of how much slower at their Jan. 31-Feb. 1 Federal Open Market Committee meeting. Meanwhile, a decline in jobless claims last week signals the U.S. labor market broadly remains strong, although it has gradually lost steam in recent months. This week four companies trimmed more than 10,000 jobs, potentially marking a shift in sentiment beyond the technology sector. The Commerce Department on Friday is set to release December spending, income and inflation figures.
Now on to today's news and analysis.
Top News U.S. GDP Rose 2.9% in the Fourth Quarter After a Year of High Inflation
The U.S. economy grew at a solid 2.9% annual rate last quarter but entered this year with less momentum as rising interest rates and still-high inflation weighed on demand.
U.S. growth in the fourth quarter was down slightly from a 3.2% annual rate in the third quarter, the Commerce Department said Thursday. Consumer spending helped drive the fourth-quarter gain, while the housing market weakened and businesses cut back their spending on equipment.
Jobless Claims Fall, Pointing to Still-Tight Labor Market
Initial jobless claims, a proxy for layoffs, fell by 6,000 to a seasonally adjusted 186,000 last week. Claims are up from lows early in 2022, but have remained near prepandemic levels. In 2019, claims averaged about 220,000 a week.
Consumer Spending, CPI Data Due in Commerce Department Report
A Commerce Department report Friday will give details on the economic health of U.S. consumers at the end of a year, when they faced elevated inflation and rising interest rates. The report will be released at at 8:30 a.m. ET.
U.S. Economy Corporate Layoffs Spread Beyond High-Growth Tech Giants
Dow Inc., International Business Machines Corp. and SAP SE announced plans to cut thousands of jobs, preparing for a darkening economic outlook, as the wave of corporate layoffs spreads beyond high-growth technology companies.
Debt Ceiling Clash Revives Dispute Over Paying Bondholders First
The latest fight over raising the federal debt limit has renewed a debate over whether the government should pay some bills and delay others if the White House and Congress fail to raise the cap before it is breached.
Bankers, Executives Pay Up for Wall Street Texting Scandal
Wall Street bankers and executives are getting their pay docked for using text messaging apps that circumvented record-keeping rules and led big banks to agree to pay $2 billion in fines to U.S. regulators.
High-Earning Men Are Cutting Back on Their Working Hours
American workers have cut the number of hours they spend in their jobs since 2019, but no group has dialed back its time on the clock more than young, high-earning men whose jobs typically demand long hours.
Key Developments Around the World Chinese Consumers Embrace Life Free From Zero-Covid Controls
Chinese travelers flooded tourism hotspots at home, booked more trips abroad and flocked to cinemas halfway through the first long public holiday since Beijing ended zero-Covid controls that battered consumer confidence.
China's Show of Smooth Covid Exit Leaves Scientists Wanting More Data IMF Explores Revived Pakistan Bailout as Currency Hits Record Low
The International Monetary Fund said it would send a team to Pakistan to hold talks on restarting a stalled bailout program as the debt-plagued country, now at risk of default, saw its currency fall to a record low against the dollar.
French Union Cuts Power to Pressure Macron on Pensions
To fight the president's pension overhaul, France's most militant labor union is pursuing a radical strategy : cutting electricity to his political supporters and the wealthy while handing out discounted power and gas to the public.
Russia's War on Ukraine Changed Global Oil Trade
Russia's war on Ukraine has redrawn the global oil map , rerouting a fleet of skyscraper-size tankers on longer voyages as they shuttle crude shipments that are essential to the global economy. The Wall Street Journal analyzed data from the ship-tracking firm Spire Global that showed the paths of about 3,000 such vessels to find those leaving Russian ports across periods before and after the Russian invasion on Feb. 24.
Forward Guidance Friday (all times ET)
8:30 a.m.: U.S. PCE price index for December; U.S. personal income and spending for December
10 a.m.: U.S. pending-home sales for December; University of Michigan final consumer survey for January
Monday
5 a.m.: EU business and consumer surveys for January
Research ECB Far From Slowing Pace of Rate Increases
The European Central Bank remains far away from further slowing the pace of interest-rate rises, according to Ulrike Kastens, European economist at DWS, who expects a 50 basis point interest-rate increase next week. Eurozone inflation is likely to drop below 9% in January, but there are no signs of easing in the underlying price trend, she writes in a note. Higher costs are likely to have prompted many companies to push through further price increases, particularly at the start of the year, and as a result the core inflation rate could rise further toward 5.5% in the coming months, from 5.2% in December, she writes. DWS looks for another 50 basis point interest-rate rise in March as well.
-Emese Bartha
Resilient U.S. Growth Unlikely to Extend to 2023
The strength of the U.S. economy in the fourth quarter of last year won't be repeated for a while, Commerzbank senior economist Christoph Balz writes in a note. The details of the quarter's gross domestic product report aren't encouraging and some December data such as retail sales and industrial production were already very weak, signaling the economy is losing momentum, he writes, adding that leading indicators such as the ISM surveys are also pointing sharply downward in January. "We continue to expect a mild recession this year, as the full impact of the Federal Reserve's rate increases is likely to be felt only this year due to the usual impact lags," Mr. Balz writes.
-Xavier Fontdegloria
Expectations of BOE Raising Rates By Half a Point Are Overdone
Market expectations for the Bank of England's interest rate path are overdone, Investec chief economist Philip Shaw says in a note. The sterling forward curve is pricing in an 80% chance the BOE will raise rates 50 basis points at the Feb. 2 meeting and expect a peak rate of 4.5% in August from 3.5% currently, Shaw says. "We doubt that the committee will be that aggressive with signs of weakness in the economy and of a rapid decline in inflation likely to become evident by the summer," he says. The BOE should lift rates by 25bp at the next meeting and to a peak of 4.0% in March before starting to cut rates in autumn to end 2023 at 3.25%, Shaw says.
-Renae Dyer
Commentary Growth Was Less Than Advertised, Better Than Feared
The U.S. economy probably wasn't as strong in the fourth quarter as advertised in the headline figure of Thursday's GDP report, but it still wasn't all that bad , and this year might not be entirely horrible, either, Justin Lahart writes.
Don't Blame Covid for the Worker Shortage
The American worker is going AWOL-often because they've aged out of the workforce, or never entered it. Their absence could impede the economy's ability to grow, and make for a less prosperous future, Justin Lahart writes.
Basis Points The U.S. economy grew in December below its historical average rate for a second straight month, according to data from the Federal Reserve Bank of Chicago. Its Chicago Fed National Activity Index came in at minus 0.49 last month, broadly unchanged from minus 0.51 in November. A negative value for the monthly index is associated with the economy growing below its average trend. (Dow Jones Newswires) The U.S. trade deficit in goods widened 8.8% to $90.3 billion in December, according to the Commerce Department's advanced estimate. Economists polled by Econoday were looking for the deficit to widen to an $88.5 billion deficit. The advanced trade data is expressed in nominal terms, meaning it is not adjusted for inflation. The widening in the trade gap only partly reverses a plunge in November. (DJN) U.S. new home sales rose 2.3% to a seasonally-adjusted rate of 616,000 in December, from a revised 602,000 in the prior month, the Commerce Department reported. This is the third month in a row that new home sales have risen. Existing-home sales, on the other hand, continue their downward streak.The December sales figure beat analyst estimates slightly. (DJN) Sales of new single-family houses in the U.S. rose in December for the third consecutive month, recovering part of the ground lost in a year in which transactions fell sharply as surging mortgage rates and high prices kept buyers on the sidelines. Sales increased 2.3% on month to a seasonally adjusted annual rate of 616,000, the highest level since August. (DJN) U.S. mortgage rates edged lower again over the past week, tempting potential homebuyers back into the market after rates surged last year. In the week ending Thursday, the average rate on a 30-year fixed-rate mortgage fell to 6.13% from 6.15% the prior week. A year ago, the average rate was 3.55%. (DJN) Manufacturing activity in the central U.S. contracted slightly in
(MORE TO FOLLOW) Dow Jones Newswires
01-27-23 0718ET
