US Economic Summary & Outlook: December 2023
While most economic indicators continue to point to a moderating economy, they generally remain at fairly reasonable levels, suggesting that the US economy should maintain a solid footing in 1Q24.
The M2 money supply has now recorded 12 consecutive months of YoY declines, yet rapid declines in the Fed’s RRP facility are acting to offset Fed tightening.
Inflation is rapidly dissipating, with 6-month annualised headline, core and supercore PCE growth all at 2% or below in November. With another large fall in gasoline prices in December expected to support another month of low headline PCE growth, a continuation in current 6-month average growth rates could see headline PCE growth hit 2% YoY in February 2024.
Whether it be private job growth, cyclical employment, or hours worked, the US employment market is showing a broad weakening. Nevertheless, most indicators remain at fairly solid levels, meaning that a further material weakening would be needed to spark major economic concerns.
Real GDP growth was strong in 3Q23, with growth continuing to be underpinned by personal consumption expenditures as real income growth now benefits from falling inflation and a continued low unemployment rate.
Nevertheless, real GDI, which theoretically should be equal to GDP, was YoY negative in 3Q23 — never has GDI been YoY negative without a recession occurring.
Factors supporting the weaker GDI number include falling M2, major disinflation, YoY declines in cyclical employment, YoY declines in imports, moderating S&P 500 revenue growth; a significant moderation in many employment metrics; and GDI having a tendency to lead GDP around major economic turning points.
All-in-all, while most economic indicators continue to point to a moderating US economy, they also remain at generally reasonable levels. As a result, the US economy appears well placed to maintain a solid footing in 1Q24.
Though with many factors also pointing to a material downshift ahead, there continues to be a significant chance that the US economy moves into Stage 4 of the Economic Cycle (a recession) at some stage during 2024.
Please find my 41-page presentation attached below, which is broken down into the following categories:
Money supply & liquidity;
GDP & associated items; and
The Stage of the Economic Cycle.
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