Morning Market Brief: Thursday, December 28, 2023

US economic activity picks up in November

Following a lacklustre October, signs pointed to more robust economic activity in the US. November’s uptick in activity was driven by a relatively strong US consumer, who continues to show resiliency despite tight financial conditions. The US economy has remained one of the strongest growers over the past few quarters, reinforcing its position as the biggest in the world.

• The Chicago Fed National Activity Index rose to 0.03 in November from -0.66 in October, its highest reading since July. The index is an indicator of economic activity in the US, with a reading above 0 denoting above-trend economic growth.
• Contributions from consumer spending and real estate market activity drove November’s growth. The US consumer has been the main driver of growth of the US economy coming out of the pandemic, benefiting from a strong labour market and robust savings.
• Last Thursday, the US Bureau of Economic Analysis announced its third and final reading of US gross domestic product. Data showed the US economy expanded by 4.9%, annualized, in the third quarter, its fastest pace of growth since the final quarter of 2021.
• The personal consumption expenditure price index (PCE) slowed to 2.6% year-over-year in November from 2.9% in October. The PCE is a preferred inflation gauge of the US Federal Reserve Board (Fed), with this reading pointing to a likelihood of the Fed beginning to reduce interest rates in 2024.

Heading into 2024, there are concerns that US consumer strength is beginning to soften, which might help to pull inflation down further, raising expectations of Fed rate cuts. In response to these expectations, US equity markets have moved higher over November and December. However, the slowdown in economic activity and already priced-in Fed rate cuts could cause some volatility in equity markets in 2024.

Please contact your advisor to discuss how changes in US economic activity impact your portfolio.