Dive Brief:
- An index that signals what lies ahead for the U.S. economy fell last month as weakening demand in manufacturing, declining building permits, ebbing consumer sentiment and other factors overrode indications of quickening growth, the Conference Board said Monday.
- “Weakness in factory new orders continued to be a major drag on the U.S. Leading Economic Index in September as the global manufacturing slump persists,” Justyna Zabinska-La Monica, a senior manager for business cycle indicators at the Conference Board, said in a statement.
- “Gains among other LEI components were not significant enough to offset weakness” in other gauges of economic vitality, she said. The index’s signal of economic uncertainty aligns with the board’s “expectation for moderate growth at the close of 2024 and into early 2025,” she said.
Dive Insight:
Recent signs of strength have buoyed hopes that the U.S. labor market and broader economy will avoid a slowdown.
Retail sales rose a higher-than-expected 0.4% last month after a 0.1% gain in August, the Commerce Department said Thursday, highlighting the strength of the U.S. consumer and bolstering recent upgrades in forecasts for 2024 economic growth.
The Federal Reserve Bank of Atlanta is confident in sustained economic growth, estimating that gross domestic product likely expanded at a 3.4% annual rate during the third quarter. GDP grew at annual rates of 1.4% in the first quarter and 3% in the second quarter, according to the Bureau of Economic Analysis.
Also, unexpectedly strong hiring by U.S. employers last month has quashed expectations of a second consecutive half-point reduction in the federal funds rate at the end of a two-day meeting of Fed policymakers on Nov. 7.
Traders in interest-rate futures have cut the odds of a half-point cut from 50% a month ago to zero, according to the CME FedWatch Tool. They see 87% odds of a quarter point reduction from the current range between 4.75% and 5%.
“Client concerns have shifted from recession to re-acceleration,” analysts at Bank of America Securities said Friday in a client note. “We now see risks to be more balanced rather than skewed to the downside, and maintain our base case of a soft landing,” in which the economy avoids widespread layoffs and a downturn.
Central Bank officials in recent weeks have noted the challenge of forecasting the outlook while reiterating that monetary policy will hinge on fresh data on inflation, employment and GDP.
“The economy is strong and stable,” Dallas Fed President Lorie Logan said Monday, while noting that “meaningful uncertainties remain in the outlook.
“Downside risks to the labor market have increased, balanced against diminished but still real upside risks to inflation” she said, adding “many of these risks are complex to assess and measure.”
A gradual reduction in the federal funds rate would help manage the risks and help the Fed achieve its goals of maximum employment and 2% inflation, she said. “However, any number of shocks could influence what that path to normal will look like, how fast policy should move and where rates should settle.”
