Consumer confidence and resilient spending are being supported by a still strong labor market and inflation that continues to fall.

Highlights for this week include:

  • Consumer spending continues to propel better-than-expected economic growth while improving consumer confidence suggests healthy future spending. Consumer confidence and resilient spending are being supported by a still strong labor market and inflation that continues to fall.
  • Economic growth drives higher corporate profits and provides the ultimate support for stocks. Major stock indexes, led by the S&P 500, reached new all-time highs in January. While market leadership remains narrowly focused on technology-related sectors, positive economic readings with falling inflation continue to support an optimistic outlook.

A Resilient, More Confident Consumer Continues to Support Economic Growth

Consumer spending remains resilient despite the headwinds of higher interest rates, tighter lending standards, and the resumption of student loan payments. Personal consumption expenditures (PCE) continued to increase at a solid pace, up 0.7% m/m in December, above the prior month’s gain of 0.4%.

Strong consumer spending also propelled better-than-expected fourth quarter (4Q) economic growth which increased at a 3.3% annualized rate, far above the consensus estimate of 2.0%. While the increase was led by consumer spending, all other major GDP components made positive contributions. Consumer spending rose at a 2.8% annualized rate in 4Q, with both goods and services spending increasing. With the labor market still strong and consumer sentiment rising, the momentum in consumer spending should carry into 2024.

Consumer confidence is improving with a still healthy labor market and falling inflation, which should support future spending. The Conference Board’s Consumer Confidence Index rose for the third straight month in January to the highest level since December 2021. The index level is historically consistent with continued economic expansion with consumers’ expectations for a recession continuing to decline.

The present situation measure of consumer confidence observed its largest monthly increase in nearly three years, hitting a level not seen since March 2020. Both current business conditions and job availability improved. Consumer expectations also rose, reaching their highest level since July.

The healthy labor market continues to support the consumer, with job openings edging up 1.1% in December to 9.026 million. Job openings remain higher than pre-pandemic, as labor demand remains solid. Additionally, job openings continue to exceed the number of unemployed.

Inflation Continues to Fall

The Federal Reserve closely watches the PCE Price Index and the Employment Cost Index as inflation indicators. Both continue to signal falling inflation. The PCE Price Index continues to make progress toward the Fed’s 2.0% inflation target with core PCE inflation (excludes volatile food and energy) falling to 2.9% y/y, the lowest level since March 2021. All core components in Fed Chairman Powell’s preferred breakdown of inflation eased. Core goods prices fell 0.1% from a year ago, hitting negative territory for the first time in more than three years. Housing and super-core (services ex-energy and housing) inflation came down to 6.4% and 3.3%, respectively.

The Employment Cost Index (ECI) increased 0.9% in Q4, the least since Q2 2021. On a y/y basis, the ECI edged down to 4.2% from 4.3% in the previous quarter. This was the slowest pace since Q3 2021 and has come down from a peak rate of 5.1% in Q2 2022, in line with the moderation in core PCE inflation.

This report is provided for informational and educational purposes only and shall in no event be construed as an offer to sell or a solicitation of an offer to buy any securities or a recommendation for any strategy or to buy, sell, or hold any product. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed here. The information described herein is taken from sources which we believe to be reliable, but the accuracy and completeness of such information is not guaranteed by us. The opinions expressed herein may be given only such weight as opinions warrant. This Firm, its officers, directors, employees, or members of their families may have positions in the securities mentioned and may make purchases or sales of such securities from time to time in the open market or otherwise and may sell to or buy from customers such securities on a principal basis. This report is the intellectual property of Janney Montgomery Scott LLC (Janney) and may not be reproduced, distributed, or published by any person for any purpose without Janney’s prior written consent. This presentation has been prepared by Janney Investment Strategy Group (ISG) and is to be used for informational purposes only. In no event should it be construed as a solicitation or offer to purchase or sell a security. Past performance is no guarantee of future performance and future returns are not guaranteed. There are risks associated with investing in stocks such as a loss of original capital or a decrease in the value of your investment. For additional information or questions, please consult with your Financial Advisor.

About the author

For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.

To learn about the professional background, business practices, and conduct of FINRA member firms or their financial professionals, visit FINRA’s BrokerCheck website: http://brokercheck.finra.org/

;