The December personal income and spending report has defied expectations, indicating a strong end to the year. Despite initial forecasts of a looming recession, real personal spending rose by 2.2% in 2023, surpassing most predictions. The resilient spending trend continued into December, with a 0.7% increase, accompanied by a backdrop of falling inflation.

The recent data has not only surpassed the Bloomberg consensus but also indicated a positive outlook for Q1 PCE and GDP growth. The report reveals a favorable scenario for the Fed, with robust spending and lower-than-anticipated inflation. Core inflation, excluding food and energy, rose by 0.2% last month, marking its year-ago rate below 3% for the first time in two-and-a-half years. Additionally, core inflation remained below the Fed’s 2% target on both a three-month annualized (1.5%) and six-month annualized (1.9%) basis in December, bringing the economy closer to the inflation mark.

The outcome of the December personal income and spending report has implications for market participants and economists, with expectations for Q1 PCE and GDP growth likely to increase. If real personal spending remains stable in the first quarter, real PCE is projected to rise at just over a 2% annualized pace. The data signifies a strong end to 2023 and a positive start to 2024, hinting at potential economic growth and stability.

As the year comes to a close, the report indicates no immediate recession but emphasizes the need to monitor financing costs, which could impact spending in other areas. Despite the absence of a recession, the year has been characterized by unexpected growth, challenging initial predictions and proving Wall Street wrong. The December data reflects a favorable economic landscape, with robust spending and controlled inflation, setting the stage for potential growth in the coming year.