Explainer-Charting the Fed's economic data flow

(Reuters) – The final month of 2023 featured a rush of data about the health of the U.S. economy and the state of price increases that a number of Federal Reserve officials saw as reassuring signs that their long fight against inflation was on track to end with a “soft landing.”

The year began with widespread expectations among economists, and many Fed officials themselves, that a recession would unfold under the weight of aggressive central bank interest rate increases. It came to an end with many confident that outcome could be avoided.

Moreover, Fed officials in their final meeting of the year signaled that the rate-increase cycle wasn’t merely over – a new cycle of rate reductions was likely in the cards for 2024.

The relatively benign run of figures that set the stage for that is, of course, now history, and just how soon officials can turn to that policy pivot rests on what the data in 2024 brings.

That rush begins in the first two weeks of the year with major readings of the job market, consumer spending and inflation due as the year kicks off.

Here is a guide to some of the numbers shaping the policy debate:

INFLATION (PCE released Dec. 22; next release CPI, Jan. 11):

Annual inflation by the Fed’s preferred Personal Consumption Expenditures Price Index fell to 2.6% in November and on a monthly basis prices declined for the first time since April 2020. The “core” index excluding food and energy prices also declined to 3.2%, the lowest that key gauge of trend inflation has been since April 2021.

Fed officials at their final meeting of the year forecast continued improvement in both measures in 2024.

Another measure, the Consumer Price Index, declined to 3.1% year-on-year in November while the core rate held steady at 4.0%. Annualized measures of the monthly rate over the last few months, however, show these gauges continuing to decline.

RETAIL SALES (Released Dec. 14; next release Jan. 17):

Retail sales rose 0.3% in November, another in the series of “upside surprises” the economy delivered over the course of the year. “Core” sales, which strip out gasoline, autos, building materials and food services, and more closely align with estimates of economic growth, also outpaced forecasts to come in at 0.4% in the latest sign of the resilience of the U.S. consumer. On a trend basis, consumer spending rates are slowing in a way the Fed is hoping to see as it watches for signs the fast rate hikes it has imposed have begun to trim overall demand for goods and services.

EMPLOYMENT (Released Dec. 8, next release Jan. 5):

Job growth in November jumped to 199,000 from 150,000 the month before, and the unemployment rate fell to 3.7% from 3.9%.

Even with the end of labor strikes involving about 40,000 workers, the latest employment report showed continued steady job gains. Alongside improved labor supply, with the number of available workers up more than half a million for the month, the report is consistent with the Fed’s view of an economy that can continue growing while inflation also ebbs.

The pace of annual wage growth also continued a slow decline, though at a 4.0% annual pace it remains higher than many Fed officials feel is consistent with price stability.

JOB OPENINGS (Released Dec. 5, next release Jan. 3):

Fed Chair Jerome Powell keeps a close eye on the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) for information on the imbalance between labor supply and demand, and particularly on the number of job openings for each person without a job but looking for one. The ratio dropped considerably in October to 1.34-to-1, the lowest since August 2021 when the economy was in the early stages of the pandemic recovery. The October number is close to the 1.2-to-1 level seen just before the health crisis. Other aspects of the survey, like the quits rate, also have edged back to pre-pandemic levels.

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