US macro scorecard - December

US macro scorecard

Source: Bloomberg, Emirates NBD Research

The US economy recorded real GDP growth of 2.1% in 2021, with the fourth quarter coming in slightly above expectations at an annualised pace of 2.9% q/q (consensus had predicted a more modest 2.6% expansion). Looking ahead to 2023, the IMF has upgraded its 2023 growth projection for the US from 1.0% in its October World Economic Outlook publication to 1.4% in its January edition. This reflects an ongoing softening in inflation and a slight improvement in the global outlook more generally, but we note that recent data is far from uniformly positive, and the consensus forecast remains for a more moderate 0.5% expansion this year. With much of the lagged effect of the Fed’s aggressive monetary tightening likely still yet to manifest, there remain downside risks for the IMF’s forecast.

Looking at the Q4 GDP print, the 2.9% annualised growth rate marked a slowdown from the 3.2% pace seen in Q3, and much of the upside surprise was driven by stocking of inventories, and by strong consumer demand at the start of the quarter. Looking at more timely data, the 1.1% m/m contraction in retail sales in December was both a larger contraction than the previous month and worse than consensus had predicted. While softening inflation – which fell to 6.5% y/y in December, in line with expectations – should help households, the likelihood is that US consumer spending – which accounts for over two-thirds of GDP – will remain under pressure and this is likely to be reflected more clearly in Q1 GDP data.

In a positive for consumer spending and general economic resilience, the labour market has so far continued to defy gravity, and while the nonfarm payrolls print for December did decline compared to November (falling from a net gain of 256,000 to 223,000, a two-year low), this still beat expectations. Meanwhile, initial jobless claims in the week to January 21 fell to 186,000, lower than both the previous week (192,000) and predictions (205,000). The labour market resilience has not been universal, however, with interest rate-sensitive sectors such as technology, finance, and housing having made significant layoffs, and there have been suggestions that others are hoarding labour for now given the issues around labour market tightness and recruiting that have been seen since the pandemic.

Looking at housing, the effect of the interest hikes on the sector have been apparent for many months now, and while new home sales came in both above expectations and up on the previous month in December, at 616,000 this remains well below the five-year average and compares to a recent peak of over 1mn sales in August 2020. A slump in residential fixed investment (down 26.7% q/q annualised), driven by less activity in the housing sector, was a drag on the Q4 growth figures. Relatedly, durable goods orders surprised to the upside in December with a 5.6% m/m gain, but when stripping out volatile transportation, the orders were down 0.1%.