Evelyn Reynolds

A widely predicted recession never showed up. Now, economists are assessing what the unexpected resilience tells us about the future.The recession America was expecting never showed up.Many economists spent early 2023 predicting a painful downturn, a view so widely held that some commentators started to treat it as a given. Inflation had spiked to the highest level in decades, and a range of forecasters thought that it would take a drop in demand and a prolonged jump in unemployment to wrestle it down.Instead, the economy grew 3.1 percent last year, up from less than 1 percent in 2022 and faster than the average for the five years leading up to the pandemic. Inflation has retreated substantially. Unemployment remains at historic lows, and consumers continue to spend even with Federal Reserve interest rates at a 22-year high.The divide between doomsday predictions and the heyday reality is forcing a reckoning on Wall Street and in academia. Why did economists get so much wrong, and what can policymakers learn from those mistakes as they try to anticipate what might come next?It’s early days to draw firm conclusions. The economy could still slow down as two years of Fed rate increases start to add up. But what is clear is that old models of how growth and inflation relate did not serve as accurate guides. Bad luck drove more of the initial burst of inflation than some economists appreciated. Good luck helped to lower it again, and other surprises have hit along the way.“It’s not like we understood the macro economy perfectly before, and this was a pretty unique time,” said Jason Furman, a Harvard economist and former Obama administration economic official who thought that lowering inflation would require higher unemployment. “Economists can learn a huge, healthy dose of humility.”Economists, of course, have a long history of getting their predictions wrong. Few saw the global financial crisis coming earlier this century, even once the mortgage meltdown that set it off was well underway. We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

The core personal consumption expenditures price index for December, an important gauge for the Federal Reserve, increased 0.2% on the month and was up 2.9% on a yearly basis.
Including volatile food and energy costs, headline inflation also rose 0.2% for the month and held steady at 2.6% annually.
Consumer spending increased 0.7%, stronger than the 0.5% estimate. Personal income growth edged lower to 0.3%, in line with the forecast.

An important inflation gauge released Friday showed that the rate of price increases cooled as 2023 came to a close.
The Commerce Department’s personal consumption expenditures price index for December, an important gauge for the Federal Reserve, increased 0.2% on the month and was up 2.9% on a yearly basis, excluding food and energy. Economists surveyed by Dow Jones had been looking for respective increases of 0.2% and 3%.

On a monthly basis, core inflation increased from 0.1% in November. However, the annual rate declined from 3.2%. The 12-month rate is the lowest since March 2021.
Including volatile food and energy costs, headline inflation also rose 0.2% for the month and held steady at 2.6% annually.
The release adds to evidence that inflation, while still elevated, is continuing to make progress lower, possibly giving the Fed a green light to start cutting interest rates later this year. The central bank targets 2% as a healthy annual inflation rate.
Markets took little notice of the data, with stock futures indicating only a slight change at the open and Treasury yields mostly lower.
“Inflation dynamics inside the metric that the Fed uses to formulate policy strongly imply that the central bank will hit its inflation target in the near term,” said Joseph Brusuelas, chief economist at RSM. “This will create the conditions in which it makes [its] policy pivot and begins a multiyear campaign in which it reduces the policy rate towards a range between 2.5% and 3%.”

The Fed’s benchmark overnight interest rate is currently targeted between 5.25%-5.5%.
As inflation drifted closer to the Fed’s target, consumer spending increased 0.7%, stronger than the 0.5% estimate. Personal income growth edged lower to 0.3%, in line with the forecast.
The data indicated that consumers are dipping into savings to pay for their expenditures. The personal savings rate fell to 3.7% for the month, down from 4.1% in November.
Within the inflation numbers, prices for goods declined by 0.2% while services prices rose by 0.3%, reversing a trend when inflation began to spike. As the pandemic forced people to stay home more, demand for goods spiked, adding to supply chain problems and exacerbating price increases.
Food prices increased 0.1% on the month while energy goods and services rose 0.3%. Prices for longer-lasting durable goods such as appliances, computers and vehicles decreased 0.4%.
Looked at in conjunction with a separate report Thursday showing that gross domestic product grew at a much faster-than-expected 3.3% pace in the fourth quarter, the most recent round of data shows an expanding economy and inflation at least moving back to the Fed’s 2% annual target.
“It is hard to say which is more remarkable: that GDP growth accelerated last year following the Fed’s most aggressive tightening campaign in decades, or that core inflation nevertheless fell back to the 2% target in annualized terms over the second half of the year,” wrote Andrew Hunter, deputy chief U.S. economist at Capital Economics.
“Either way, it is time for Fed officials to take the win and start dialing back the level of policy restrictiveness soon,” he added.
While the public more closely follows the Labor Department’s consumer price index, Fed policymakers prefer the PCE because it adjusts for shifts in what consumers actually buy, while the CPI measures prices in the marketplace.
Inflation has been a nettlesome problem since the early days of the Covid pandemic, when price increases surged to their highest levels since the early 1980s. The Fed initially expected the acceleration to be temporary, then responded with a series of interest rate hikes that took its benchmark rate to its highest in more than 22 years.
Now, with the inflation rate cooling markets largely expect the Fed to start unwinding its policy tightening. As of Friday morning, futures traders were assigning about a 53% chance the Fed will enact its first rate cut this cycle in March, according to CME Group data. Pricing points to six quarter-percentage point decreases this year.
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The Federal Aviation Administration’s decision to limit Boeing’s production of 737 Max planes could hurt airlines that are struggling to buy enough new aircraft.Boeing hoped 2024 would be the year it would significantly increase production of its popular Max jets. But less than a month into the year, the company is struggling to reassure airline customers that it will still be able to deliver on its promises.That’s because the Federal Aviation Administration said on Wednesday that it would limit the plane maker’s output until it was confident in Boeing’s quality control practices. On Jan. 5, a panel blew off a Boeing 737 Max 9 body shortly after takeoff, terrifying passengers on an Alaska Airlines flight and forcing the pilots to make an emergency landing at Portland International Airport in Oregon. Almost immediately, the F.A.A. grounded some Max 9s.Since then, details have emerged about the jet’s production at Boeing’s facility in Renton, Wash., that have intensified scrutiny of the company’s quality control. Boeing workers opened and then reinstalled the panel about a month before the plane was delivered to Alaska Airlines.The directive is another setback for Boeing, which had been planning to increase production of its Max plane series to more than 500 this year, from about 400 last year. It also planned to add another assembly line at a factory in Everett, Wash., a major Boeing production hub north of Seattle.As part of the F.A.A.’s announcement on Wednesday, it also approved inspection and maintenance procedures for the Max 9. Airlines can return the jets to service once they have followed those instructions. United Airlines said on Thursday that it could resume flying some of those planes as soon as Friday.The move is another potential blow to airlines. Even though demand for flights came roaring back after pandemic lockdowns and travel restrictions eased, the airlines have not been able to take full advantage of that demand. The companies have not been able to buy enough planes or hire enough pilots, flight attendants and other workers they need to operate flights. A surge in the cost of jet fuel after Russia invaded Ukraine also hurt profits.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

The president made the trip to promote a $1 billion infrastructure project, contrasting his performance with the chaotic “Infrastructure Week” plans of former President Donald J. Trump.Consumer confidence is up. Fears of a recession are abating. The economy is growing. And a corroded bridge in Wisconsin is receiving more funding.It is a wintry mix of positive news for President Biden, who traveled to the shores of a bay near Lake Superior on Thursday to stand at the foot of the Blatnik Bridge, a structure that his administration said would have failed by 2030 without a $1 billion infusion provided by the bipartisan infrastructure law that Mr. Biden championed.The president was there to talk infrastructure and the economy, and to contrast his performance with that of his predecessor and likely challenger in the general election , former President Donald J. Trump.“The economic growth is stronger than we had during the Trump administration,” Mr. Biden, dressed in a casual pullover sweater, said as he addressed Wisconsinites assembled at Earth Rider Brewery in Superior, Wis. “We obviously have more work to do, but we’re making real progress.”As the president spoke, Mr. Trump was taking the stand in a defamation trial in New York, offering a striking split-screen comparison that the Biden campaign has welcomed.Mr. Biden and his advisers believe projects like the Blatnik, taking place in the backyards of Americans living in battleground states like Wisconsin, could be enough to bolster optimism and overcome pervasive skepticism about the state of the economy.In his event, Mr. Biden talked about the $6.1 billion that had been invested in Wisconsin and the $5.7 billion in Minnesota, located just over the bridge, which supports agriculture, shipping and forestry industries in the upper Midwest. The Blatnik, which spans the St. Louis Bay and connects the ports of Superior and Duluth, Minn., had corroded and been clogged with construction and detours.“For decades people talked about replacing this bridge, but it never got done,” Mr. Biden said. “Until today.”Bipartisan law or not, no Republican lawmakers assembled to greet Mr. Biden. (“I’m sorry to say the vast majority voted against it,” Mr. Biden said, a number that includes Rep. Tom Tiffany, a Republican representing the district where the bridge is located.)“The economic growth is stronger than we had during the Trump administration,” Mr. Biden said.Michael A. McCoy for The New York TimesThe Democratic governors of both Wisconsin and Minnesota showed up. “This would not have happened without Biden,” Gov. Tony Evers of Wisconsin told attendees.Several other Democrats, including Senator Tina Smith of Minnesota and Senator Tammy Baldwin of Wisconsin, accompanied the president as he observed the bridge and, later, met with people at a taproom next to the brewery. Senator Amy Klobuchar of Minnesota sipped a glass of beer as she mingled next to Mr. Biden.Even without no-show Republicans, who are quickly closing ranks around Mr. Trump, there are other headwinds to overcome.Mr. Biden has faced low approval ratings on the economy. And he has been criticized by other Democrats over whether it was smart of him to adopt Bidenomics as a namesake effort to take credit for an economy that Americans have repeatedly signaled they don’t feel excited about.On Thursday, Mr. Biden did not seem to be feeling any qualms. In the brewery, he stood in front of a pole that had letters spelling “Bidenomics,” and assailed Mr. Trump for “hollowed-out communities, closing down factories, leaving Americans behind.”For his part, Mr. Trump has attacked Mr. Biden on just about everything, but has also falsely claimed that low employment numbers under the Biden administration are not real.Elsewhere in the Midwest, Treasury Secretary Janet Yellen took rare aim at Mr. Trump during a speech in Chicago.“Our country’s infrastructure has been deteriorating for decades,” Ms. Yellen said on Thursday. “In the Trump administration, the idea of doing anything to fix it was a punchline.”There was truth to her comment. During Mr. Trump’s presidency, he would often veer away from infrastructure-related speeches to attack his enemies. In his first Infrastructure Week-themed event in 2017, he accused James B. Comey, whom he had fired as F.B.I. director, of committing perjury and of leaking to the news media. He later proposed a $2 trillion infrastructure package without specifics on how he’d get the money. The phrase “Infrastructure Week” became a running joke in Washington.In November 2021, Mr. Biden signed a $1.2 trillion infrastructure bill into law.“Instead of infrastructure week, America is having an infrastructure decade,” Mr. Biden said on Thursday, referring to the work his administration has done.In a show of how significant Wisconsin will be ahead of the election in November, Mr. Biden traveled there just three days after Vice President Kamala Harris began a nationwide tour for reproductive rights in an event outside Milwaukee. Wisconsin is a battleground state where his campaign is focusing on courting Black voters, young voters and any voters who might help him wrest the state’s 10 electoral votes from Mr. Trump.Though Mr. Trump was in court, the Republican National Committee released a statement criticizing Mr. Biden for making the trip and blaming Bidenomics for economic problems.“With staggering inflation and negative economic growth, Wisconsinites are feeling the brunt of Joe Biden’s failures,” the group’s chairman, Ronna McDaniel, said in a statement. “Try as he might, it’s too little, too late to impress workers and families who are living paycheck to paycheck thanks to Bidenomics.”Alan Rappeport More

The Treasury Secretary acknowledged that consumer prices, which have weighed on economic sentiment, continue to be too high.Treasury Secretary Janet L. Yellen criticized the Trump administration’s economic policies, while praising the Biden administration for successfully navigating the pandemic.Yuri Gripas for The New York TimesTreasury Secretary Janet L. Yellen defended the Biden administration’s economic agenda on Thursday, drawing sharp contrasts with the policies of the Trump administration as President Biden begins to make the general election argument that he has been a stronger steward of the economy than his predecessor.The comments from Ms. Yellen came after new data released on Thursday bolstered that message: The United States economy grew at a healthy clip over the past year, surpassing 3 percent and defying expectations of a recession. The strong numbers coincided with an effort by the White House to amplify the president’s economic record and dispatch his top economic advisers around the country to make the case that his strategy is working.Biden administration officials are trying to convince a skeptical public that, while they may feel pessimistic about the economy, its performance is delivering gains to average Americans. Officials are expected to spend the coming months highlighting the investments that Mr. Biden has directed toward infrastructure, domestic manufacturing and clean energy projects.In a speech at the Economic Club of Chicago, Ms. Yellen argued that the Biden administration had successfully navigated challenging headwinds caused by the pandemic and led a recovery that has outpaced those in the rest of the world. She also suggested that the Biden administration needed more time to tackle affordability issues, such as improving access to child care and housing.“Our economic agenda is far from finished,” Ms. Yellen said.The Treasury secretary also took the rare step of directly criticizing the policies of Mr. Biden’s predecessor and likely opponent, former President Donald J. Trump. Pointing to Mr. Trump’s repeated pledges to rebuild America’s roads and bridges, she recalled how those promises went unfulfilled.“Our country’s infrastructure has been deteriorating for decades,” Ms. Yellen said. “In the Trump administration, the idea of doing anything to fix it was a punchline.”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

The increase in gross domestic product, while slower than in the previous period, showed the resilience of the recovery from the pandemic’s upheaval.The U.S. economy continued to grow at a healthy pace at the end of 2023, capping a year in which unemployment remained low, inflation cooled and a widely predicted recession never materialized.Gross domestic product, adjusted for inflation, grew at a 3.3 percent annual rate in the fourth quarter, the Commerce Department said on Thursday. That was down from the 4.9 percent rate in the third quarter but easily topped forecasters’ expectations and showed the resilience of the recovery from the pandemic’s economic upheaval.The latest reading is preliminary and may be revised in the months ahead.Forecasters entered 2023 expecting the Federal Reserve’s aggressive campaign of interest-rate increases to push the economy into reverse. Instead, growth accelerated: For the full year, measured from the end of 2022 to the end of 2023, G.D.P. grew 3.1 percent, up from less than 1 percent the year before and faster than the average for the five years preceding the pandemic. (A different measure, based on average output over the full year, showed annual growth of 2.5 percent in 2023.)“Stunning and spectacular,” Diane Swonk, chief economist at KPMG, said of the latest data. “We’ll take the win.” More

European Central Bank President Christine Lagarde said Thursday she was proud to lead the institution, after her performance was criticized in a union-run survey.
Lagarde said that the ECB’s own surveys suggested people were happy to work at the central bank and had a sense of mission.
“What keeps me going is those answers,” she told reporters at the January monetary policy briefing.

European Central Bank President Christine Lagarde looks on as she attends the European Parliament’s Committee on Economic and Monetary Affairs, at the European Parliament, in Brussels, Belgium September 25, 2023. 
Yves Herman | Reuters

President Christine Lagarde on Thursday said she was “proud and honored” to leead the European Central Bank, after her leadership was slammed in a union-run survey of staff.
She was responding to a question about the findings, published by ECB union IPSO earlier this week, in which more than half of respondents rated her performance so far as “very poor” or “poor.”

The survey’s qualitative responses suggested some staff believed she had created a negative atmosphere at the central bank, and that she spends “too much time on topics unrelated to monetary policy,” IPSO said.
Appearing unfazed, former politician and lawyer Lagarde said that the ECB conducted its own surveys in a “way that we can trust.” These showed a majority of respondents say they are happy to work at the institution, would recommend working there to a friend, and felt a mission associated to their work.
The surveys are conducted by around 60% of employees, and also cover wages, respect in the workplace and workplace satisfaction, she said.

“We pay great attention to these technically sound responses and we act upon them, and we will continue to do so. What keeps me going is those answers,” Lagarde told reporters in a briefing following the ECB’s January monetary policy meeting.
“And I’m extremely proud of the staff of the ECB, and I’m very proud and honored to lead the institution, because we are driven by mission. Delivering price stability, but serving the Europeans, and we will continue doing that,” she continued.

IPSO’s survey was completed by around 1,100 people. The ECB has more than 5,000 employees and trainees.
The union said the responses “generally” described Lagarde as being “an autocratic leader” who does not necessarily act according to the values she proclaims.
She was rated significantly more poorly than her predecessors Jean-Claude Trichet and Mario Draghi, it said.
An ECB spokesperson called the survey “flawed” and said it included topics that were not specific to the presidency and outside of IPSO’s remit. They also said it could have been filled out multiple times by the same person.

—CNBC’s SiIvia Amaro contributed to this article. More

GDP, a measure of all the goods and services produced, increased at a 3.3% annualized rate in the fourth quarter of 2023. Wall Street 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 the Wall Street outlook at the beginning of the year for few if any gains and better than the 1.9% increase in 2022.
A strong pace of consumer spending helped drive the expansion, as did government spending.
There also was progress on inflation. Core prices for personal consumption expenditures rose 2% for the period, while the headline rate was 1.7%.

The economy grew at a much more rapid pace than expected while inflation eased in the final three months of 2023, as the U.S. easily skirted a recession that many forecasters had thought was inevitable, the Commerce Department reported Thursday.
Gross domestic product, a measure of all the goods and services produced, increased at a 3.3% annualized rate in the fourth quarter of 2023, according to data adjusted seasonally and for inflation.

That compared with the Wall Street consensus estimate for a gain of 2% in the final three months of the year. The third quarter grew at a 4.9% pace.

In addition to the better than expected GDP move, there also was some progress on inflation.
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%.
On an annual basis, the PCE price index rose 2.7%, down from 5.9% a year ago, while the core figure excluding food and energy posted a 3.2% increase annually, compared with 5.1%.
The two components together added up to “supersonic Goldilocks, because it’s really a strong number yet inflation hasn’t shown up,” said Beth Ann Bovino, chief economist at U.S. Bank. “Everybody wanted to have fun. People bought new cars, a lot of recreation spending as well as taking trips. We’ve been expecting a soft landing for some time. This is just one step in that direction.”

The U.S. economy for all of 2023 accelerated at a 2.5% annualized pace, well ahead of the Wall Street outlook at the beginning of the year for few if any gains and better than the 1.9% increase in 2022.
As had been the case through the year, a strong pace of consumer spending helped drive the expansion. Personal consumption expenditures increased 2.8% for the quarter, down just slightly from the previous period.
State and local government spending also contributed, up 3.7%, as did a 2.5% increase in federal government expenditures. Gross private domestic investment rose 2.1%, another significant factor for the robust quarter.
The chain-weighted price index, which accounts for prices as well as changes in consumer behavior, increased 1.5% for the quarter, down sharply from 3.3% in the previous period and below the Wall Street estimate for a 2.5% acceleration.
“This year has been like Rock ‘Em Sock ‘Em Robots, and the economy is knocking the blocks off the economists, always outperforming,” said Dan North, senior economist with Allianz Trade Americas. Fed Chair Jerome Powell “has got to have a smirk on his face this morning. Again, he’s defying the economists’ predictions with strong growth and inflation clearly coming under control.”
Markets showed only a modest reaction to the report. Stock futures gained slightly while Treasury yields moved lower. Futures markets continued to reflect the likelihood that the Fed will enact its first rate cut in May, though the CME Group’s FedWatch gauge put the odds of a March cut at 47.4% around 10 a.m. ET.
“It was a great report, but you didn’t see the market move much because GDP is backward-looking. It told us what happened in October and November and December,” North said. “It’s great for historical patterns, but it doesn’t really tell us much about where we’re headed.”
In other economic news Thursday, initial jobless claims totaled 214,000, an increase of 25,000 from the previous week and ahead of the estimate for 199,000, according to the Labor Department. Continuing claims rose to 1.833 million, an increase of 27,000.
The GDP report wraps up a year in which most economists were almost certain the U.S. would enter at least a shallow recession. Even the Fed had predicted a mild contraction due to banking industry stress last March.
However, a resilient consumer and a powerful labor market helped propel the economy through the year, which also featured an ongoing pullback in manufacturing and a Fed that kept raising interest rates in its battle to bring down inflation.
As the calendar turns a page to a new year, hopes have shifted away from a recession as markets anticipate the Fed will start cutting rates while inflation continues to drift back to its 2% goal.
Concerns remain, however, that the economy faces more challenges ahead.
Some of the worries center around the lagged effects of monetary policy, specifically the 11 interest rate hikes totaling 5.25 percentage points that the Fed approved between March 2022 and July 2023. Conventional economic wisdom is that it can take as long as two years for such policy tightening to make its way through the system, so that could contribute to slowness ahead.
Other angst centers around how long consumers can keep spending as savings dwindle and high-interest debt loads accrue. Finally, there’s the nature of what is driving the boom beyond the consumer: Government deficit spending has been a significant contributor to growth, with the total federal IOU at $34 trillion and counting. The budget deficit has totaled more than half a trillion dollars for the first three months of fiscal 2024.
There also are political worries as the U.S. enters the heart of the presidential election campaign, and geopolitical fears with violence in the Middle East and the continuing bloody Ukraine war.
Correction: The price index for personal consumption expenditures rose 2.7% on an annual basis, down from 5.9% a year ago. An earlier version mischaracterized the figures.
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