The U.S economy has proven robust throughout the coronavirus outbreak after overcoming the worst quarter-to-quarter contraction in the history of the country, but at one point it seemed to some as if it was about to given up.
Two quarter-long contractions in the gross domestic product during the first quarter of the year caused some experienced analysts (and some politicians) to declare that the recession had already begun.
But put down the sympathy cards. On Thursday the government is scheduled to release that the economy grew in the third quarter of 2018, possibly by up to 3.3%. This is a figure that could be considered as good regardless of the economic conditions.
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A model that is widely used to measure economic output by the Federal Reserve Bank of Atlanta known as GDP Now estimates the third quarter’s growth rate at 2.9 percent, which is up from 2.4 percent just one month prior.
“Ahead of Thursday’s first Q3 US GDP report These comments are similar to the latest GDP now forecasts that suggest the return of positive growth in GDP for the third quarter of this year,” BCA Research wrote on Monday morning. “Nevertheless the backdrop of rising inflation and the tight labor market continue to call for more monetary policy, which could pose danger to the economic outlook.
In the release this week, of its minutes of its September session of the monetary policy committee Federal Reserve Chairman Jerome Powell and his co-chairs described the economy’s performance as growing “modestly” along with significant growth in travel and tourism and steady or increasing manufacturing activity as one of the positives.
However, it also noted a decline in retail sales, auto sales and housing as a result of the central bank’s frenzied campaign of rate hikes. However, recent earnings reports from the major banks, as well as other gauges of consumer spending indicate that Americans continue to spend even though inflation is at 8.8% per year and their spending habits shifts from goods to services.
“Our U.S. consumer clients were resilient, with robust but slower-growing consumption levels, and the highest deposit levels,” CEO Brian Moynihan stated when he announced the bank’s stronger-than-expected third quarter earnings this week. “Across all of the institution, we increased loans by 12% over previous year, as we provided the necessary financial resources to help our customers.”
The stock market, frequently a sign of economic health, had its highest week since the beginning of June which ended on Friday an increase of 700+ points on the Dow Jones Industrial Average. The Dow increased by nearly five percent during the week.
“No it’s not, the economy doesn’t want to end up dying,” says Sevin Yeltekin who is the director of the Simon Business School at the University of Rochester. “There’s plenty of resilience of places. Yet many economists are anticipating a recession in of the next twelve months though the odds of it occurring in the next year seem to be decreasing. Some have benefited from a report this week’s The Wall Street Journal that the Fed could take a break following its November meeting which is when a 75 basis point rate hike is likely.
Mary Daly, president of the San Francisco Fed, added an additional credence to the notion in a Friday speech at the University of California Berkeley.
“I believe that the moment is now to begin talking about quitting – it’s time to begin planning to step away,” Daly said.
“The Fed is raising from the lowest level,” says Nela Richardson the chief economist of ADP, a private payroll and human resource firm ADP. “It has a lag. The hikers must climb to a higher elevation and then remain there. I’d argue that they’re likely to stay for months or even for a whole year.”
A key factor in that decision is a report that will be released on Friday morning. The price of personal consumption index is closely watched by the Fed and is particularly its main index, which strips the cost of energy and food to illustrate how wide inflation is across the economy. The expectation is that it will decline on the monthly basis from September 0.5 0.6% from 0.6 0.5% in August.
Other economic developments this week include the price of housing on Tuesday, and new homes sale on Wednesday. The housing market is in decline because mortgage rates have increased by more than a quarter from the year before. The week closes with the last University of Michigan consumer sentiment report for September.
Although studies of the consumer’s psyche have revealed an unfavorable outlook for the future, Americans have continued to spend, helped by the balance sheets of households that are healthy despite the greatest inflation rate in the last 40 years.
“The notion of shopping is deeply ingrained in our culture,” says Kathy Gramling the consumer industry market leader in EY Americas. “We are always able to be sure that our American consumer to buy.”
