Data released this week continue to demonstrate the U.S. economy's resilience. Holiday sales closed 2024 stronger than expected, small business optimism has rallied back to pre-pandemic levels and home builders have signaled greater confidence in the traffic of prospective buyers. The steady demand impulse has kept some pressure on inflation. The Consumer Price Index ended the year at 2.9% year-over-year, which is a minor improvement from its 3.1% rate in January 2024 and points to stalled progress on the road back to the Federal Reserve's 2% inflation target.
On a monthly basis, the headline CPI rose 0.4% in December on the wings of higher gasoline and food prices. Firm price growth in these essential items has strained lower-income households in particular. Excluding food and energy, the core CPI rose a tamer 0.2%. Vehicle prices continued to rise, but at a slower rate than in November, while prices for the remainder of core goods fell or were essentially flat over the month. Core services inflation remained solid as housing costs (owners' equivalent rent and primary rent) reverted to their recent trend after slowing sharply in November.
The CPI details, along with December's Producer Price Index, suggest the core PCE deflator rose 0.2% in the final month of 2024. If realized, that increase would leave the year-over-year change at 2.8%, down just three-tenths from where it started the year (chart). With the Federal Reserve's preferred gauge of inflation also showing stalled progress, and considering the potential inflationary impulse of policy changes from the incoming administration, the risks to the FOMC's price stability mandate have risen in recent months.
Meantime, the risks surrounding the maximum employment side of the mandate have subsided. Initial claims for unemployment insurance remain historically low. Nonfarm payroll growth surprised to the upside in December, and the unemployment rate unexpectedly fell to 4.1%. The net share of small businesses planning to hire in the next three months rose to 19% in December, which is the highest reading in nearly two years. We suspect the FOMC will feel comfortable maintaining a more restrictive stance of monetary policy this year, given the recent string of solid jobs data. As discussed in the Interest Rate Watch, we now look for only two 25 bps rate cuts in the second half of 2025 and expect the FOMC to hold at a target range of 3.75%-4.00% through 2026.
This Week's State Of The Economy - What Is Ahead? - 20 September 2019
Wells Fargo Economics & Financial Report / Sep 21, 2019
The Federal Reserve reduced the fed funds rate 25 bps this week, continuing to cite economic weakness overseas and muted inflation pressures.
This Week's State Of The Economy - What Is Ahead? - 18 November 2022
Wells Fargo Economics & Financial Report / Nov 21, 2022
The resiliency of the U.S. consumer was also on display, as total retail sales increased a stronger-than-expected 1.3% in October, boosted, in part, by a 1.3% jump in motor vehicles & parts and a 4.1% rise at gasoline stations.
This Week's State Of The Economy - What Is Ahead? - 20 September 2024
Wells Fargo Economics & Financial Report / Sep 24, 2024
The economic calendar was packed this week, but one event took center stage. At the conclusion of its September 17-18 meeting, the FOMC announced a 50 bps reduction in the federal funds rate to a target range of 4.75%-5.00% (chart).
Economic Uncertainty Seems Removed Going Into The New Year 2020
Wells Fargo Economics & Financial Report / Dec 28, 2019
The U.S. economy continues to expand, albeit at a moderate pace. The U.S. Bureau of Economic Analysis reports U.S. gross domestic product (GDP) grew 2.1 percent in Q3/19.
This Week's State Of The Economy - What Is Ahead? - 13 November 2020
Wells Fargo Economics & Financial Report / Nov 14, 2020
The combination of the election outcome and a workable vaccine boosted financial markets and set the background music for this week’s short list of indicators.
This Week's State Of The Economy - What Is Ahead? - 18 October 2019
Wells Fargo Economics & Financial Report / Oct 19, 2019
Personal consumption is still on track for a solid Q3, but retail sales declined in September for the first time in seven months.
This Week's State Of The Economy - What Is Ahead? - 28 February 2020
Wells Fargo Economics & Financial Report / Feb 29, 2020
The COVID-19 coronavirus hammered financial markets this week and rapidly raised the perceived likelihood and magnitude of additional Fed accommodation.
This Week's State Of The Economy - What Is Ahead? - 10 September 2020
Wells Fargo Economics & Financial Report / Sep 12, 2020
Although the recovery from the COVID recession is still far from over, the U.S. economy is bouncing back faster than many expected.
This Week's State Of The Economy - What Is Ahead? - 04 September 2020
Wells Fargo Economics & Financial Report / Aug 29, 2020
Employers added jobs for the fourth consecutive month in August, bringing the total number of jobs recovered from the virus-related low to 10.5 million.
This Week's State Of The Economy - What Is Ahead? - 07 August 2020
Wells Fargo Economics & Financial Report / Aug 11, 2020
There were more signs of global recovery this week and PMI surveys improved further across the world.
