01/27/2023 | Press release | Distributed by Public on 01/27/2023 13:24
Key Takeaways:
Headline GDP was stronger than we had expected as inventory investment and net trade beat expectations. Still, the underlying details point to an economy that's losing momentum, which is in line with our expectations for a recession to begin in the first half of 2023. First, personal consumption expenditures were lower than we had expected and monthly data, including a second consecutive month of declining real consumption in the personal income report, showed consumption losing steam towards the end of the quarter. This sets up a low, or perhaps even negative, growth rate for PCE in Q1. Business fixed investment (BFI) was also weaker than expected and points to growing caution among businesses. With core durable goods and shipment orders shrinking in nominal terms in December, BFI also looks to have weakened at the end of the quarter. Finally, we expect the recently volatile inventory investment to swing back in Q1 and provide a drag to GDP. Combined with weak personal consumption, this sets up what we expect to be a modestly negative quarter of economic growth in Q1.
While new home sales rose in December, the release came with a sharp downgrade to November new home sales, which caused the quarter to come in below our expectations. As the supply of completed and nearly completed homes for sale grows, we expect homebuilders to more aggressively discount homes, either through price concessions or through buying down points on mortgage rates, to drive higher volumes of sales. Therefore, while existing home sales will likely continue to be sluggish, we expect new home sales to remain comparatively resilient for the foreseeable future. Still, pending home sales rose in December amid a pullback in mortgage rates, presenting some upside risk to our near-term existing sales forecast.
Nathaniel Drake
Economic and Strategic Research Group
January 27, 2023
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