Keeping up with the US economy

Amid the geopolitical storm brewing at Davos, it’s easy to forget that perhaps the most consequential economic news is breaking right here at home.

Take a look at the slew of economic data we got this morning:

• Core PCE jumped 0.2% in November from the month prior and 2.8% year over year—largely in-line with expectations, though still above the Fed’s 2% target.
• Q3 GDP jumped 4.4% annually between July and September—an acceleration from 3.8% in the three months prior.
• Initial jobless claims remained low—only rising 1,000 to reach 200,000 in the week ending Jan. 17, below economists’ predictions.

While all the positive news for the US economy was especially welcome given the chaotic undertones of, well, everything, the data also provided even more evidence of the so-called “K-shaped” economy.

“This impressive strength masks a more troubling reality,” explained Senior Economist at EY Lydia Boussour in a written comment. “Beneath the surface, many families are grappling with depleted savings and the challenges of fewer job opportunities and slower income growth which is eroding their purchasing power.”

So, what now?

All eyes now turn to the Fed meeting next week. Given the latest reassuring macro data proving the US economy is not a sinking ship, the central bank is likely to leave rates unchanged for now. Traders seem to agree: They’re pricing in a 95% chance of rates staying at their current level.

What does all this mean for investors? According to the experts, it’s a green light.

“It is often said that the stock market is not the economy and vice versa; however, higher corporate profits do drive stock prices and to the extent a sustainable increase in productivity and output allow companies to meaningfully increase profits, we should expect the market to increase as well,” wrote Chief Investment Officer for Northlight Asset Management Chris Zaccarelli in a note.—LB