Economic Outlook - October 2022
- The Conference Board Leading Economic Index® (LEI) for the US decreased by 0.3% in August 2022 to 116.2 (2016=100), after declining by 0.5% in July. The LEI fell 2.7% over the six-month period between February and August 2022, a reversal from its 1.7% growth over the previous six months. After six consecutive monthly LEI declines, slowing economic activity throughout the US economy has been correlated. A major factor contributing to this slowdown has been the Federal Reserve’s increase in interest rates to counter inflation. We project a recession in the coming quarters.
- For six consecutive months, the annual US inflation rate has exceeded 8%. The Core Personal Consumption Expenditures (PCE) Price Index is closely watched by Federal Reserve policy makers. This rate is now 4.9%.
- At the same time, current employment data remains encouraging. The current simultaneous conditions are unusual – the highest inflation in four decades, rising interest rates and a strong job market. The four-week average of unemployment claims declined last week to 207,000 suggesting the economy is still robust and stronger than forecasts. Two job openings exist for every person seeking employment. Thus, the demand for labor still far exceeds supply. The current low unemployment rate of 3.7% increases the probability the Fed will continue to increase interest rates. As a result, greater economic slowing could weaken the strong job market.
- Europe is experiencing serious energy supply challenges, wartime disruptions and more severe inflation than in the US. We see Europe heading into recession, as is the global economy.
- The upward surge in mortgage rates (30 year fixed is over 7%) is constraining the homebuilding industry, a major US economy component with a broad multiplier impact on associated industries. New and existing US home sales are likely to continue to contract.
- Some hopeful signs for cooling inflation are surfacing. For example, housing rental rates are down slightly for the first time in two years. According to small business payroll processor Paychex, wage growth is starting to moderate. A survey of auto dealers finds that 84% expect prices over the next 12 months to be flat to down. In early September, used vehicle prices modestly declined.
- The Conference Board Consumer Confidence Index® increased in September for the second consecutive month. The Index now stands at 108.0 (1985=100), up from 103.6 in August. This index reflects prevailing business conditions and likely developments for the months ahead. The monthly reading details consumer attitudes and buying intentions, from data collected by age, income, and region. Improvement is related to jobs, wages and declining gas prices. However, purchasing intentions were mixed, with intentions to buy automobiles and big-ticket appliances up, while home purchasing intentions fell.
Sources: FactSet, Institute for Supply Management (ISM), The Conference Board, US Bureau of Labor Statistics
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