Advance Gross Domestic Product, the broadest measure of economic output, fell at an annualized rate of 3.8% in 4Q, decreasing less than the forecast of a 5.5% decline, but representing a steep drop from a 0.5% decline in 3Q. Personal consumption was down an expected 3.5%, following a 3.8% decline in 3Q. GDP benefitted from a rise in inventories, with real final sales, which exclude changes in inventory, falling 5.1%.
The core PCE Index, which excludes food and energy, was up just 0.6%, below the estimate of 1.0%, signaling that price pressures are disappearing amid falling commodity prices and declining aggregate demand. The rate now sits below the Fed’s implied target of 1-2%.
The Employment Cost Index rose 0.5%, below the estimate of 0.7%. The weakness in labor costs may lessen the impact of falling demand on corporate profits but it may also reduce already weak support for consumer spending.
The Chicago Purchasing Managers’ Index which measures manufacturing in the Midwest, fell from 35.1 in December to 33.3 in January, worse than the estimate of 34.9 and the lowest reading since 1982.
Final University of Michigan consumer sentiment for January fell 0.7 points from the preliminary reading to 61.2, below the projected reading of 61.9. Mounting job losses, falling home prices, and weakness in equities all contributed to the mounting pressure consumers are facing.
