The Generation, Year: 1, Issue: 12
This is the week Americans give thanks.
And while polls show they are generally sour about the state of the economy – especially inflation that has pushed the overall cost of living up nearly 20% in the past three years – there are reasons for celebration of economic news as the year winds down.
Inflation is receding, admittedly from a high level, down about two-thirds from the 9% annual rate seen in the summer of 2022. The economy’s growth rate hit 4.9% in the third quarter, well above what economists had expected at the start of the year when many hand penciled in a recession by now.
Employment remains strong if not quite at the red-hot levels of a year ago. The stock market has rebounded from its recent swoon and is on tap for a good November. And gas prices are down around $3 a gallon ahead of this critical week for holiday driving, while mortgage rates have backed off their recent highs. GasBuddy is forecasting Americans will save more than $1 billion in gas costs driving this Thanksgiving compared to last year.
The conventional wisdom that saw a recession in early 2022 and then again this year now is firmly in the soft landing scenario, where inflation cools down close to the Federal Reserve’s 2% annual target and employment does not fall off a cliff. And while market observers see some concern in what might turn out to be an overly positive bias, those who are predicting a recession in 2024 do think it will turn out to be a mild one.
There is little expectation the Fed will raise interest rates in December at its next meeting after being on pause since July and two benign inflation reports last week. Expectations now have shifted to the central bank cutting rates by the second quarter. Even Congress managed to put off a government shutdown at least until next year.
“While we agree with the money market that the Fed’s done hiking, we suspect its 2024 rate-cut timetable might be too ambitious,” BCA Research wrote in a client note Monday morning. “Our US Bond Strategy service sees a good chance that inflation could ease to 2% over the next twelve months. Such a benign inflation outcome would increase our conviction that the coming recession will be mild.”
It will be a shortened week for economic data and market activity. Thursday is the national holiday followed by an early close for Wall Street on Friday.
The week starts with a read on the economy from the Conference Board’s leading economic index. It declined in September by 0.7% and has continued to signal a recession is in the cards. But its decline of 3.4% over the six months from March was less than the 4.6% drop for the previous six months. While it has been a reliable indicator of an economic downturn in the past, it is one of many economic signals that has proven less definitive in the wake of COVID-19.
There is a report on existing homes on Tuesday along with the release of the Fed’s minutes of its last meeting earlier this month. Analysts will be looking for any sense members of the Fed’s monetary committee and Chairman Jerome Powell are finished with their rate hikes.
Wednesday brings the final reading of the University of Michigan’s consumer sentiment index for November. That may show a slight improvement based on the recent slump in gas prices.
Still, the overriding narrative at the moment is one that sees a slowdown bringing further relief on the inflation front and continued, if weaker, growth ahead for the economy.
“The trend lower is in place and this should increase Fed Chair Powell’s confidence that the Fed does not need to raise rates again,” said Steve Wyett, chief investment strategist at BOK Financial. “When combined with the weaker-than-expected employment report, we can see the Fed’s actions are having an impact. The ‘soft landing’ scenario remains intact.”
Source: US News