Broker Check

Salt Lake City Office

2150 East 1300 South,

Suite 500
Salt Lake City, UT 84106

January 2024

Hurray!!—The 4th Quarter of 2023 did some “make up” work for 2022.  The big question is the Fed pulling off a “soft landing” or are we waiting for the other shoe to drop?

The economy in the last quarter of 2023 still expanded at a moderate rate but slowed substantially from the rapid pace of the third quarter and the entire inflation-riddled year.  This is what the Feds want to see before starting down the road to lower interest rates.

Slower growth in Q4 and the prospects of lower interest rates has fueled equities, while US Treasuries remain in the 5% return category.  All good news for our portfolios.

Estimates that Real GDP expanded at a moderate 2.1% annual rate in the fourth quarter is mostly accounted for by an increase in consumer spending.  After hearing “inflation, inflation, inflation”—consumers really did spend more—especially from Black Friday on to the end of the year. 

Interest rates: Rates are holding steady, and it’s expected that the Feds will start easing. Lower rates make everyone happy from markets and lending to housing and spending. Historically speaking, interest rates have been lowered in election years, priming the pump for a better economy.

Consumer Spending: “Real” (inflation-adjusted) retail sales outside the auto sector rose at a modest 1.3% annual rate in Q4 while auto sales declined at a 3.6% rate.  However, it looks like real services, which makes up most of consumer spending, should be up at a moderate 2.4% pace.  Putting it all together, we estimate that real consumer spending on goods and services, combined, increased at a 2.2% rate, adding 1.5 points to the real GDP growth rate.

Business Investment:  We estimate a 1.8% growth rate for business investment, with gains in intellectual property leading the way, while commercial construction declined.  A 1.8% growth rate would add 0.2 points to real GDP growth.  

Home Building:  Residential construction is showing some resilience in spite of some lingering pain from higher mortgage rates.  Home building looks like it grew at a 2.6% rate.

Government:  Only direct government purchases of goods and services (not transfer payments) count when calculating GDP. That puts it up at a 1.7% rate in Q4, which would add 0.3 points to the GDP growth rate.

Trade:  Looks like the trade deficit shrank in Q4, as both exports and imports declined but imports declined faster.  In government accounting, a drop in the trade deficit means faster growth, even if exports and imports both declined.  

Inventories:  Inventory accumulation looks like it slowed down in Q4, meaning inventories generally went up, but at a slower pace than in Q3. That translates into what we estimate will be a 0.3 point drag on the growth rate of real GDP.  

Are we out of the woods yet? Not quite. It is not time to throw caution to the wind.  We know better than to get majorly more aggressive in our portfolios at the first sign of double digit returns in the S&P.  We still have a ways to go, but here at TruNorth we are cautiously optimistic for 2024.