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Strong Consumer Spending

Economic Observer: Up-to-date information on the latest financial news

Overview: While the major inflation data released over the past week revealed no significant surprises, consumer spending continued to exceed expectations. As a result, mortgage rates ended the week a little higher.


The Consumer Price Index (CPI) is one of the most widely followed inflation indicators. To reduce short-term volatility and get a better sense of the underlying inflation trend, investors often look at core CPI, which excludes the food and energy components. In December, core CPI was 3.9% higher than a year ago, down from an annual rate of 4% last month and the lowest level since September 2021.

The core CPI annual rate has fallen quite a bit from its peak in September 2022, yet it is still far above the readings around 2% seen early in 2021, which is the stated target level of the Federal Reserve. A primary reason is that shelter (housing) costs remained elevated, but they are expected to slowly ease this year. Other categories with large monthly increases included airline fares, medical care, and used vehicle prices.


Despite numerous headwinds such as higher prices and credit card rates, consumer spending has continued to outperform the forecasts of economists. In December, retail sales rose 0.6% from November, above the consensus forecast for an increase of 0.4%. Gains were seen across a wide range of categories, particularly in restaurants/bars, clothing stores, appliances, and online retailers, while furniture stores posted large declines. Retail sales, which are not adjusted for inflation, were 5.6% higher than a year ago, exceeding the increase in prices over that period.


Core CPI (annual % change)

Chart of Core CPI annual percentage change from April to December 2023


Week Ahead

Jan. 18

New Residential Construction report (also known as Housing Starts)

Jan. 19

Existing-Home Sales report

Jan. 25

New-Home Sales report

2023 Q4 gross domestic product (GDP)

Jan. 26

Personal Consumption Expenditures (PCE) Price Index

Personal Income and Outlays


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