Gross domestic product (GDP), adjusted for inflation, increased at a 2.7 percent annualized rate in Q4 2022, and new single-family home sales rose 7.2 percent to a seasonally adjusted annualized rate of 670,000, the highest rate since March 2022.
According to Fannie Mae, Real disposable income had a strong gain in January as updated inflation-adjusted tax brackets effectively gave wage earners a tax cut compared to December. Part of this translated into additional spending which, when combined with the earlier retail sales report, suggest Q1 consumption will be higher than our forecast. Still, we remain skeptical of the seasonal adjustments surrounding the holiday season. The saving rate was also a bit higher and has increased for four consecutive months after hitting 3.0 percent in September. Even still, consumption remains elevated relative to income and will likely need to return to historically normal levels this year, causing a slowdown in consumer spending in our forecast.