Job growth likely moderated in February after an unexpectedly-strong 353,000 jobs added in January, which surprised to the upside considering that winter weather disrupted consumer spending and housing activity during the month. The unemployment rate is likely to edge higher in February on an increase in labor force participation. Wage growth likely moderated slightly but continues to run hotter than before the pandemic.
The ISM Services PMI is likely to indicate moderating economic activity in February, but still continued growth. The uptick in mortgage rates since January likely slowed housing activity in the month, which influences the Services PMI. The Fed’s Beige Book is likely to report modest growth in economic activity, with slower price increases after businesses made large turn-of-year hikes to inflation-indexed healthcare billing rates in January. Consumer credit likely rose modestly in January after little change in December. January’s drop in auto sales likely weighed on auto loan balances.
Economic growth in the fourth quarter of 2023 was revised down a tenth of a percent to a seasonally-adjusted annualized rate of 3.2% in the “second” estimate of real GDP. While the headline number was little changed, the details showed notable upward revisions to growth of consumer spending, residential investment, nonresidential fixed investment, and state and local government spending. These upward revisions were offset by a headwind from a drop in private inventories.
The GDP Price Index, the broadest measure of price pressures in the economy, and the Personal Consumption Expenditures Price Index, the Fed’s preferred measure of inflation, rose at annualized paces of 1.6% and 1.8%, respectively. The Fed, however, is likely to find little solace in last quarter’s inflation prints, as a slew of more up-to-date readings, such as January’s Personal Consumption Expenditures Price Index, Producer Price Index, and ISM Services PMI point to a pick up in price pressures, especially in the services sector, in which prices change infrequently.
Personal income jumped 1.0% in January, far exceeding the 0.4% consensus. Incomes grew broadly with robust increases in dividends, wages and salaries, and social security payments. The good news, however, was offset by higher personal current tax payments, which surged by 6.0% in January, resulting in no gain of real disposable personal income. Weather’s adverse impact on the economy was yet again apparent, with real personal consumption expenditures slipping by a tenth. Spending on goods took the brunt of the impact and fell 1.1%, while expenditures on services, which are less prone to weather disruptions, rose by 0.4%.
The personal consumption expenditures (PCE) price index rose by 0.3% on the month and slowed to 2.4% from a year earlier. The core PCE price index, which excludes volatile energy and food prices, rose by 0.4% in January and was up 2.8% from a year earlier. Service prices, which jumped by 0.6%, accounted for all of the price increases in January.
Bill Adams is a senior vice president and chief economist at Comerica. Waran Bhahirethan is a vice president and senior economist at Comerica.
