Weakness spreads to the hard activity data

First came the inversion of the yield curve. Next the index of leading indicators began to fall. Then the survey-based activity indicators plunged well below the 50 mark. Finally, this week we learned that the weakness had spread to the hard data on activity – with both underlying retail sales and manufacturing output declining in not just November, but December too. Adding to the gloom, the Fed’s latest Beige Book warned that “overall economic activity was relatively unchanged since the previous report” and that “contacts generally expected little growth in the months ahead”. Fourth-quarter GDP growth was probably as high as 2% annualised, but the economy lost a lot of momentum over the final months of last year and enters 2023 on its knees. It’s true that payroll employment continued to grow but, even there, the slumps in temporary help employment and average hours worked both point to a significant moderation in the first few months of this year.