Source: Economics Group of Wells Fargo Bank, N.A.
Summary
The December personal income and spending report spiked the ball in the end zone on a year that defied expectations. While we concede that a recession does not appear in the immediate offing, keep an eye on financing costs as they could crowd out spending elsewhere.No Recession, No Soft Landing Either, Just Growth
It was a year that defied expectations and proved Wall Street wrong. Real personal spending rose 2.2% in 2023 (chart). Most forecasters called for recession early on, and when spending failed to slow, the recession was pushed out. The feared contraction may not be coming after all, in fact households ended the year on a high-note with personal spending up 0.7% in December. Most remarkable is that this resilient spending came against a backdrop of falling inflation.
Today’s outcome was better than indicated by the Bloomberg consensus, though yesterday’s Q4 GDP data and 2.8% outturn for annualized real PCE growth suggested some upside to the 0.5% consensus expectation. The upward surprise thus wasn’t much surprise at all. It will, however, have economists and market participants upping their expectations for Q1 PCE and thus GDP growth. Consider, for example, if real personal spending is simply flat in the three-month period spanning the first quarter, then real PCE would rise at just over a 2% annualized pace.