Cautious optimism on U.S. economy

Latest data shows job market remaining strong, housing market continuing slide.

2023-02-24 -

GDP

The U.S. economy expanded at a 2.7% annual rate from October through December, a solid showing despite rising interest rates and elevated inflation, the government said Thursday in a downgrade from its initial estimate.

The government had previously estimated that the economy grew at a 2.9% annual rate last quarter.

The Commerce Department’s revised estimate of the fourth quarter’s gross domestic product — the economy’s total output of goods and services — marked a deceleration from the 3.2% growth rate from July through September.

Thursday’s report revised down the government’s estimate of consumer spending growth in the October-december quarter, from 2.1% to 1.4%. That was the weakest such showing since the first quarter of last year.

More recent data shows that the economy has since rebounded. Consumers boosted retail sales in January by the most in nearly two years.

Unemployment

The number of Americans filing for jobless aid fell last week as the labor market remains resilient in the face of the Federal Reserve’s interest rate increases meant to cool the economy.

Applications for unemployment benefits in the U.S. for the week ending Feb. 18 fell by 3,000 last week to 192,000, the Labor Department said Thursday. It marked the sixth consecutive week that claims were under 200,000.

The four-week moving average of claims, which evens out some of the weekly volatility, inched up by 1,500 to 191,250 — the fifth straight week that figure has been below 200,000.

Applications for unemployment benefits are considered a proxy for the number of layoffs in the U.S.

Earlier this month, the Fed raised its main lending rate by 25 basis points, its eighth rate hike in less than a year. The central bank’s benchmark rate is now in a range of 4.5% to 4.75%, its highest level in 15 years. Chair Jerome Powell appeared to suggest that he foresees two additional quarter-point rate hikes.

So far, the Fed’s hawkish interest rate policy has tempered inflation but has had less impact on a robust U.S. job market.

About 1.65 million people were receiving jobless aid the week that ended Feb. 11, a decrease of 37,000 from the previous week.

Mortgage rates

The average long-term U.S. mortgage rate jumped this week to its highest level since November, more grim news for a housing market that has been in decline for a year.

Mortgage buyer Freddie Mac reported Thursday that the average on the benchmark 30-year rate rose to 6.5% from 6.32% last week. The average rate a year ago was 3.89%.

The average long-term rate reached a two-decade high of 7.08% in the fall as the Federal Reserve continued to raise its key lending rate in a bid to cool the economy and quash persistent, four-decade-high inflation.

The big rise in mortgage rates during the past year has battered the housing market, with sales of existing homes falling for 12 straight months to the slowest pace in more than a dozen years. January’s sales cratered by nearly 37% from a year earlier, the National Association of Realtors reported Tuesday.