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The government reopened quickly after a brief shutdown, so last week’s economic data was released after all. It included big-picture news from across the economy, with the signals remaining positive overall despite some weakening in several areas.
Last week’s news
There were two economic releases last week, both on Friday. The first estimate of economic growth in the fourth quarter of last year, the GDP report, showed growth ticking down from a very strong 3.2 percent to 2.6 percent—well below expectations of 2.9 percent. Looking at the details, however, the shortfall was due to a large surge in imports. This result looks to be largely seasonal in nature, rather than a slowing of the economy, which suggests that growth continues despite the weak number.
This is further supported by the mix of growth, with consumer spending up by 3.8 percent, as expected, and business investment rising strongly. Government spending also rose as expected at the state and local level.
The durable goods orders report did better than expected. The headline number, which includes transportation and can be quite volatile, rose to growth of 2.9 percent in December. This represented a substantial increase from upwardly revised growth of 1.7 percent in November and was well above the expected growth of 0.9 percent. It was also the largest increase in six months. The core figure, which excludes transportation, rose slightly less than expected, to growth of 0.6 percent in December against expected growth of 0.7 percent. November’s growth, however, was revised upward from a decline of 0.1 percent to growth of 0.3 percent, so the final level was higher than expected. This reflects continued business investment growth and is a positive sign for the economy.
What to look forward to
This will be a big week for economic data, with four major reports. On Monday, the personal income and spending report for December did slightly better than expected, with income growth rising from 0.3 percent in November to 0.4 percent for December. Personal spending growth, on the other hand, ticked down slightly from 0.6-percent growth in November to 0.4-percent growth in December, which is still a strong level.
On Tuesday, the Conference Board’s consumer confidence survey is expected to show that confidence rose from 122.1 in December to 123.1 in January. With the stock market rising and the tax cuts starting to affect paychecks, an increase seems likely. There may be some downside risk here, however, given recent declines in the other major confidence index from the University of Michigan. But even a small decline would leave this index at levels consistent with continued growth.
On Wednesday, the regular meeting of the Federal Open Market Committee will conclude. Expectations are for no action on interest rates. This will be Janet Yellen’s last meeting as chair, so markets will be watching for clues to see how the new chair’s policy tilt may change.
On Thursday, the Institute for Supply Management will release the January Manufacturing index. It is expected to tick down from a very strong 59.7 in December to an almost-as-strong 59 for January. This would reflect continued weakness of the dollar, which makes U.S.-manufactured goods more affordable and spurs continued global growth. Here again, there is some downside risk, given the weakening trends in regional surveys; however, even a larger pullback would still signal healthy growth.
Finally, on Friday, we get the employment report. The economy is expected to add 188,000 new jobs for January. This would be an improvement over the relatively weak 148,000 jobs added in December. If it does rebound, it would return job growth to the typical levels of the past year. The unemployment rate is expected to hold at 4.1 percent, a low level historically, and the average workweek is also expected to hold at 34.5 hours per week. Wage growth is expected to remain constant at 0.3 percent. The annual increase in this number, however, would rise from 2.5 percent in December to 2.7 percent in January, which could be a sign of acceleration. If the wage data meets expectations, it would indicate continued strong expansion of the economy as a whole.
Have a great week!
