Economic Outlook – November 2019

November 15, 2019 Economic Outlook

  1. U.S. Gross Domestic Product grew at an annualized rate of 1.9% in the third quarter (Q3) of 2019. This followed increases of 3.1% and 2.0% in the first and second quarters of 2019, respectively. Important contributors to growth in Q3 were consumer spending and government outlays. Personal consumption expenditures grew by 2.9% while government spending increased 2.0%. Detractors from growth included business spending as investment in both structures and equipment declined in the quarter. Manufacturers continue to pull back in response to concerns over the trade and tariff war with China. Overall, Q3 GDP growth was better than expected and the U.S. economy continues to grow at a steady pace. Current estimates for fourth quarter GDP growth are for an increase of 1.5%-2.0%, which would result in an increase for the year of around 2.0%. Looking ahead, we expect the U.S. economy to accelerate in 2020.

  2. Despite a slowdown in GDP growth over the past six months, the U.S. economy continues to generate jobs and wage gains. Nonfarm payrolls increased by 128,000 in October, a strong performance in light of detrimental factors such as a strike at General Motors and a temporary decrease in the federal workforce. October marked the 109th consecutive month of job creation, the longest streak on record. With ample job openings drawing people off the sidelines, the participation rate for workers between the ages of 25 and 54 hit a ten-year high at 82.8%.  Wage growth has been steady for over a year around the 3.0% level and average hourly earnings in October also grew by that amount.

  3. At its October meeting, the Federal Reserve Open Market Committee (FOMC) lowered the federal funds rate by 0.25% to a range between 1.50% – 1.75%. This represented the third 0.25% reduction following similar moves in July and September. Fed Chair Powell has characterized these rate cuts as a “mid-cycle adjustment” in an attempt to cushion the economy against a slow-down precipitated by the U.S. / China trade conflict. Mr. Powell also remarked, “The current state of policy is likely to remain appropriate” thereby indicating there may be a pause prior to any potential further interest rate reductions. The FOMC next meets on December 10-11, 2019.

  4. In the third quarter reporting season, corporate earnings have exceeded expectations. Nevertheless, these results have come against a lower bar as analysts have reduced estimates throughout 2019 in the face of slowing global economic growth and the continuing U.S. / China trade dispute. Current 2019 estimates for the S&P 500 are tracking towards the lowest annual growth rate in four years. However, equities were discounting this slowdown in the fourth quarter of 2018. Going forward, earnings growth rates will improve in 2020 and the strength in equity markets is foretelling this rebound.

Sources: Bloomberg LLCFactSet, U.S. Commerce Department, Bloomberg Businessweek

Disclosure: This commentary reflects the opinions of Welch & Forbes based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation.


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