The eagerly anticipated personal consumption expenditures (PCE) reading for December showed the continued taming of that economic shrew, inflation.

The Bureau of Economic Analysis (BEA) reported Friday that the “core” PCE, which excludes food and energy, rose 4.4% from a year ago, down from the 4.7% reading in November and meeting consensus estimates. That was the slowest annual rate of increase since October 2021. Month-over-month, core PCE increased 0.3%, also in line with estimates.

Headline PCE, which includes food and energy, rose 0.1% on a monthly basis and 5% from a year ago. That number was the lowest annual rate since September 2021.

Consumer spending adjusted for inflation fell 0.2% in December, worse than the 0.1% estimated drop.

The PCE is the Fed’s preferred inflation measure because it covers a much broader range of spending than the consumer price index (CPI), which only reflects out-of-pocket spending. On January 12, the government reported that the CPI declined 0.1% in December after increasing 0.1% in November.

The following chart shows the PCE’s longer term trend:

Investors were cheered by the economic data. The main U.S. stock market indices closed higher Friday as follows:

• DJIA: +0.08%
• S&P 500: +0.25%
• NASDAQ: +0.95%
• Russell 2000: +0.44%

All four indices racked up a winning week, with the tech-heavy NASDAQ posting its fourth week of gains.

The S&P 500 has punched through its 200-day moving average, a bullish technical indicator. The U.S. 10-Year Treasury edged past 3.52%, reflecting inflation’s still high (albeit easing) level.

WATCH THIS VIDEO: The Narrative Shifts from Inflation to Growth

The economy remained resilient in 2022, despite inflation, the Russia-Ukraine war, and Federal Reserve tightening.

U.S. gross domestic product, adjusted for inflation, grew at an annual rate of 2.9% in the fourth quarter of 2022, the BEA reported Thursday. That figure was down from 3.2% in the third quarter, but it still represented a respectable end to a tumultuous year in which recession fears were rampant.

Also on Thursday, the Labor Department reported that 186,000 workers filed for new unemployment benefits during the week ending January 21, a decrease of 6,000 from the previous week’s revised level. Weekly jobless claims are at their lowest level since April 2022.

Driving the economy is a tight labor market combined with trillions of dollars of accumulated household savings. Robust employment combined with spending power has helped Americans withstand elevated inflation.

Remember the “jobless recovery” of a decade ago? We now seem to be in the midst of a “job-full recovery.”

Analysts are increasingly confident that we’ll avoid a recession this year. We can thank the American shopper, who continues to show a willingness to spend. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, dropped in December but on a quarterly basis increased at a 2.1% rate in Q4, down only slightly from Q3.

Falling inflation combined with a durable economy. Have we reached a “Goldilocks” moment? Not exactly. As Larry David might say: Curb your enthusiasm.

The economy already is feeling the pressures of Federal Reserve tightening. Manufacturing output, construction activity, and home sales have all substantially slowed, largely due to higher interest rates.

Technology stocks have rebounded in recent weeks as inflation wanes, but tech companies have responded to higher rates and economic uncertainty by laying off tens of thousands of workers.

The Sayings of Chairman JPow…

At its meeting next week, the Fed’s policy-making Federal Open Market Committee (FOMC) may see Friday’s PCE reading as justification for only raising rates by 0.25%, instead of another 0.50%.

The U.S. central bank is currently striving for slow but positive economic growth, otherwise known as a “soft landing.”

At his December 14 press conference, after the FOMC hiked interest rates by 0.50%, Fed Chair Jerome Powell said: “There are channels through which the labor market can come back into balance with relatively modest increases in unemployment.”

Of course, an acceptable level of unemployment means that the government economist to whom it is acceptable still has a job. Regardless, trying to second-guess the FOMC is perilous. A study by the New York Fed found that FOMC statements tend to substantially increase financial market volatility.

Wall Street wags have given Powell the nickname “JPow” for his ability to punch the stock market up or down with his garrulous press conferences. I’m bullish over the long-term for 2023, but next week will be fraught with risk.

Editor’s Note: The year 2022 was dismal for the stock market. As 2023 unfolds, are you eager to finally make some big money? Consider the advice of our colleague, Jimmy Butts.

Jimmy is the chief investment strategist of our premium trading service Maximum Profit. Jimmy has a single goal with Maximum Profit and it’s one he takes very seriously…to help you become wealthy.

Jimmy isn’t satisfied delivering mediocre returns that just barely beat the market. Instead, Maximum Profit is designed to present you with opportunities to generate life-changing fortunes.

Right now, Jimmy’s trading system has detected a stealth bull market in gold and gold miners. The time to act is now, before the rest of the investment herd catches on. Click here for details.

John Persinos is the editorial director of Investing Daily.

Subscribe to John’s video channel: