The US Economy Came In Hot in January - But There Are Some Caveats

The US was unseasonably hot in January, and it wasn’t just the weather.

Friday’s data are only the latest indication that the economy got off to a strong start in 2023, underscored by the biggest jump in consumer spending in nearly two years and a reacceleration in closely watched measures of inflation. Sales of new homes also surged, following figures last week that showed strong retail sales.

It’s all underpinned by an exuberant labor market, which shocked even more to the upside with January job growth that topped all estimates and the unemployment rate retreating to a 53-year low. That’s supporting incomes, boosting sentiment and giving Americans the wherewithal to keep spending, therefore keeping inflation elevated and pressuring the Federal Reserve to act more aggressively.

The question is: How long can that strength last? The answer lies, at least in part, in to what degree that strength was a function of underlying momentum versus one-off factors.