US Economic Outlook – 1 Nov 2019

Our baseline growth and inflation outlook is unchanged this month, while downside risks from the trade war and other political developments (eg Brexit) appear for now to have diminished somewhat. Nevertheless, the global growth backdrop remains subdued, the manufacturing sector in a contraction, and forward-looking capex indicators still soft. On the consumer side, confidence remains high by historical standards, but consumption growth continues to slow, particularly in services, the largest spending category. While labor markets remain tight, whether the recent slowdown in job growth is driven by limited supply or a drop in demand remains a subject of debate. To sustain the current expansion, the Federal Reserve cut the Fed Funds rate for a third consecutive time in October, but signaled increasing data dependence ahead. As we expect economic data to deteriorate further in the next few months, we foresee one more rate cut in 1Q20. The Fed also resumed organic balance sheet growth earlier in the month, to prevent a passive reserve squeeze.

Key takeaways

  • Consumer spending remained the engine of growth in 3Q19, albeit at a slowing pace, while business investment contracted by more than expected.
  • The solid pace of real disposable income growth is not translating into equally strong consumption growth.
  • Real GDP growth decelerated a tick to 1.9% in 3Q19.
  • Manufacturing is in recession, and forward-looking investment indicators are weak.
  • Core consumer price inflation is showing some momentum, but the Fed's preferred core PCE inflation remains subdued.
  • (Geo-) political risks remain elevated, despite some modestly positive developments on the trade war and the Brexit front over the past month.
  • The Federal Reserve cut rates for a third consecutive time in October; we foresee one more cut in 1Q20 as we expect economic data to further deteriorate.


Economic Outlook US Economic Outlook - 1 November 2019