The US economy started the month with a stormy start, and already now various data indicate its slowdown. Economists say this trend will only get stronger.
The National Association for Business Economics said in a survey released on Monday that U.S. GDP growth next year will fall below 2%, for the first time since 2016. In the previous poll, the consensus forecast for next year was 2.1% – now it has dropped to 1.8%.
While 54 economists surveyed do not yet anticipate a recession, the harsh outlook is a prime example that a slowdown is no longer just an expectation. This is a fact here and now, and probably will remain so..
Last week, a report from the Institute for Supply Management found that the US manufacturing sector contracted for the second straight month in September. The service sector also unexpectedly slowed down. Friday’s mixed labor market report left investors wondering if the Federal Reserve will step up again to spur economic growth later this month..
However, when viewed in perspective, the US economy is in good shape..
For example, in September, fewer jobs were added than expected, but overall, America has almost full employment. Job growth is slowing as the unemployment rate is now 3.5%, the lowest since December 1969. In such a situation, there is not enough staff to fill open vacancies..
The economy is really still «in a good condition», Fed Chairman Jerome Powell said Friday. This is the longest growth in the U.S. economy on record and is still growing – only at a slower pace..
The Fed has raised interest rates twice this year to support growth. But there are still expectations for a change in monetary policy during the rest of 2019. NABE economists are split: 40% expect another rate cut this year. Three quarters of them expect a rate cut by the end of 2020.
By comparison, market expectations are 78% likely to be down a quarter percentage point this month and nearly 90% likely to be down in December, according to the CME FedWatch Tool..
But whether interest rates are cut or not, the trade war remains a real risk to the economy..
«Rising protectionism, widespread trade policy uncertainty and slowing global growth are considered key downside risks», – says Gregory Daco, chief US economist at Oxford Economics and head of research at NABE.
There is great uncertainty about the prospects for a trade war between the US and China for overall growth and specific sectors such as manufacturing that depend on both global demand and materials from abroad..
The financial markets were stormy with news headlines throughout the year, with stocks rallying at the slightest sign of hope of a trade and then falling with another escalation. If there hadn’t been a trade war, the outlook for the economy might look very different..