The U.S. Economy Is Still Not Ready to Give Up the Ghost
In its release last week of the minutes from the September meeting of its monetary policy committee, Federal Reserve Chairman Jerome Powell and colleagues described the economy’s performance as expanding “modestly” with a strong uptick in travel and tourism along with steady or growing activity in manufacturing among the positives.
But it noted weakness in retail, auto sales and housing from the central bank’s aggressive campaign of interest rate hikes. Still, recent earnings reports from the big banks and other barometers of consumer spending show that Americans continue to spend, even as inflation tops 8% annually and their consumption habits shift from goods to services.
“Our U.S. consumer clients remained resilient with strong, although slower growing, spending levels and still maintained elevated deposit amounts,” CEO Brian Moynihan said in announcing the bank’s better-than-expected third-quarter earnings last week. “Across the bank, we grew loans by 12% over the last year as we delivered the financial resources to support our clients.”
The stock market, often a predictor of future economic health, posted its best week since June last week, ending on Friday with a 700-plus point gain in the Dow Jones Industrial Average. And some have taken heart from a suggestion late last week in The Wall Street Journal that the Fed may take a breather after its November meeting, when another 75 basis point hike in interest rates is expected.
“The Fed is raising from rock bottom levels,” says
The U.S economy has proven itself resilient throughout the coronavirus pandemic, recovering from the sharpest quarterly contraction in history, but earlier this year it looked to some as if it had finally succumbed.
Two quarterly contractions in gross domestic product in the first half of the year led many seasoned observers (and more than a few politicians) to say a recession had begun.But hold the sympathy cards. On Thursday, the government is expected to report the economy expanded in the third quarter, perhaps by as much as 3%. That’s a performance that would be considered good in any economic environment.In its release last week of the minutes from the September meeting of its monetary policy committee, Federal Reserve Chairman Jerome Powell and colleagues described the economy’s performance as expanding “modestly” with a strong uptick in travel and tourism along with steady or growing activity in manufacturing among the positives.But it noted weakness in retail, auto sales and housing from the central bank’s aggressive campaign of interest rate hikes . Still, recent earnings reports from the big banks and other barometers of consumer spending show that Americans continue to spend, even as inflation tops 8% annually and their consumption habits shift from goods to services.“Our U.S. consumer clients remained resilient with strong, although slower growing, spending levels and still maintained elevated deposit amounts,” CEO Brian Moynihan said in announcing the bank’s better-than-expected third-quarter earnings last week . “Across the bank, we grew loans by 12% over the last year as we delivered the financial resources to support our clients.”The stock market, often a predictor of future economic health , posted its best week since June last week , ending on Friday with a 700-plus point gain in the Dow Jones Industrial Average. The Dow was up nearly 5% for the week.Yet most economists are still predicting a recession within the next 12 months, although the odds of one beginning before next year appear to be receding somewhat. And some have taken heart from a suggestion late last week in The Wall Street Journal that the Fed may take a breather after its November meeting, when another 75 basis point hike in interest rates is expected.“The Fed is raising from rock bottom levels ,” says Nela Richardson, chief economist at private payroll and human resources firm ADP. “It works with a lag. They have to hike to a higher level and then stay there. I would argue they are going to stay there for months, maybe a year.”Factoring into that decision will be a report out Friday morning. The personal consumption expenditures price index is followed closely by the Fed, especially its core index that strips out food and energy costs to show how broad inflation is throughout the economy. Expectations are for it to have declined on a monthly basis in September to 0.5% from 0.6% in August.Other economic news this week will include housing prices on Tuesday and new home sales on Wednesday. The housing sector is in a slump as mortgage rates have doubled from a year ago. The week ends with the final University of Michigan consumer sentiment report for September.
