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Mosaic Asset Partners - A Strong GDP Showing Rules The Week

January 26, 2024

It’s hard to imagine that the first month of the year is nearly in the books already, yet here we are. The big-ticket item this week was the release of the 4th quarter GDP (gross domestic product) number. The GDP is a measure of all the goods and services produced in the U.S and is reported on a quarterly basis. This ever important metric is a valuable tool in evaluating the overall health of the economy. For the 4th quarter of 2023, this number increased at a healthy 3.3% annualized rate. Wall Street economists had been looking for a 2% gain. The U.S. economy for all of 2023 accelerated at a 2.5% annualized pace, well ahead of what was expected to occur at the start of the year and better than the 1.9% increase we saw in 2022. There was also some positive inflation news in the report with the release of the PCE index (personal consumption expenditures). Core prices for personal consumption expenditures, which the Federal Reserve prefers as a longer-term inflation measure, rose 2% for the period, while the headline rate was 1.7%, which was slightly lower than expected.  On an annual basis, the PCE price index rose 2.7%, down from 5.9% a year ago.  Keep in mind these are somewhat “backward looking” data points, but the continued resiliency of the consumer throughout 2023 helped to keep the economy in motion and on track.

In addition to the GDP and PCE numbers, we also had some insight into the labor market this week. Initial jobless claims totaled 214,000, an increase of 25,000 from the previous week and ahead of the estimate of 199,000, according to the Labor Department. Continuing claims rose to 1.833 million, an increase of 27,000. These Labor Department numbers will be important to watch in the months ahead. Already this year we have seen a significant number of tech companies announce various types of layoffs from merger-related issues to simply reducing headcount and restructuring. I suspect the rapid onset of AI (artificial intelligence) into the tech space is playing a large role in these changes. Many companies are pivoting and adopting these new technologies and finding ways to remain even more profitable. This will also be important to watch because many of these roles that are being eliminated tend to be higher paying jobs. The question will be how much of an impact will this have on spending, particularly in the more tech heavy cities in certain parts of our country like California. The Federal Reserve has long stated that lower inflation and higher unemployment were the keys to lowering interest rates in the future. Perhaps the stars are truly aligning to achieve that soft landing???

Corporate earnings remained in the forefront as well this week. There remains a mixed bag of reports so far, with only certain segments of the tech industry really showing surprising upside results. Most other industries are performing well but not exceeding Wall Street analyst’s expectations by any big measure. A common theme from many companies so far has been the lower costs of “inputs” (think materials needed to produce goods), but wage costs and insurance have increased to offset any significant savings overall to their balance sheets. Kimberly-Clark CFO, Nelson Urdaneta, pointed out, “Core commodities like pulp, resin, energy [in] dollar terms are expected to be somewhat favorable following the trends that we saw in the back half of last year…However, if you think of other components of our cost basket like distribution, logistics and labor inflation, that’s actually going to remain a headwind in this year in ’24, and that’s pretty much offsetting the tailwinds that we’re seeing on the core commodities.” Even companies like JB Hunt (an over the road trucking company) mentioned much higher insurance costs in their recent report. That is something that is likely to personally resonate with all of us as we get our annual home and car insurance bills. What is promising to me however is that many companies we follow, use, and depend on are figuring out ways to maneuver in our changing economic environment. This same theory holds true for all of us. Adaptability is the key to moving forward and so far consumers have found a way to do so.

I hit you all with a lot of data points this week. I know, it’s a lot to consume, but very important to understand. At least in my world!! Please know we are watching and adapting ourselves as needed. Hang in there and enjoy your weekend ahead.

https://www.cnbc.com/2024/01/25/gdp-q4-2023-the-us-economy-grew-at-a-3point3percent-pace-in-the-fourth-quarter.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Mail

https://www.cnbc.com/2024/01/26/ai-hiring-frenzy-to-fuel-layoffs-in-other-tech-segments-this-year.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Mail

https://www.cnbc.com/2024/01/26/tech-layoffs-jump-in-january-as-alphabet-meta-microsoft-reach-high.html

https://www.cnbc.com/2024/01/26/earnings-so-far-technology-leads-but-lots-of-caution-elsewhere.html

Christopher E. Wasson, CFP®

President

 Mosaic Asset Partners, LLC

1122 Kenilworth Drive, Suite 310

Towson, MD  21204

410.821.0089         fax 410.821.5993

MosaicAssetPartners.com       

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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.