In October, the US economy showed further signs of weakening. The latest update from the Chicago Fed National Activity Index, which tracks economic performance over three months (CFNAI-MA3), reported a drop to -0.20, marking the lowest level since March 2015. However, despite this recent downturn, the index remains above the -0.70 threshold typically associated with the onset of recessions, per Chicago Fed guidelines. On a more optimistic note, there are indications that economic conditions could improve as the year comes to a close. The Atlanta Fed’s current GDPNow estimate for fourth-quarter growth is projected at 2.3%, showing a recovery from the sluggish 1.5% growth observed in Q3.
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Forecasts suggest that the US economy is poised for a modest recovery in the upcoming fourth quarter. While it’s still early for precise estimates for Q4, most economists anticipate a rise above the meager 1.5% GDP growth (annualized rate) recorded in Q3.
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Last week saw emerging-market equities perform well amidst various major asset classes. Specifically, Vanguard Emerging Markets Stock (VWO) achieved a notable total return of 4.5% during the trading week ending November 20, surpassing the performance of US real estate investment trusts (REITs) as indicated by Vanguard REIT (VNQ).
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● Eurozone Composite PMI rises to a 4-1/2 year high in November | Markit
● Germany’s Composite PMI ticks up to a three-month high in November | Markit
● France’s Composite PMI drops to a three-month low in November | Markit
● The Kansas City manufacturing index in November shows the first positive reading since February | KC Star
● Eurozone consumer confidence index increases in November | Reuters
● Income Inequality: Why It Matters and Why Most Economists Didn’t Notice
By Matthew P. Drennan
Summary via publisher (Yale University Press)
Current economic theories attribute the 2008 financial crisis and subsequent Great Recession to factors such as low interest rates and the housing bubble. However, through detailed statistical analysis, Matthew Drennan argues that income inequality was the primary driver behind the crisis. As Americans faced stagnant wages, many leveraged their home equity, accumulating excessive debt. The resulting collapse of the housing market left this debt unmanageable, triggering widespread economic repercussions. Drennan also identifies striking parallels in consumer behavior leading up to both the Great Depression and the Great Recession.
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The three-month average for the Chicago Fed National Activity Index (CFNAI) is anticipated to show a decline in the upcoming October update, which is set to be released on Monday (November 23). The Capital Spectator’s consensus forecast predicts a decrease to -0.21, a drop from -0.09 in September, indicating that US economic activity is slightly below the historical growth trend. According to Chicago Fed guidelines, only readings under -0.70 signal a rising risk of recession. The expected October estimate suggests that while growth remains below the historical trend, it is likely not indicative of an impending recession.
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A recent November survey from the Philadelphia Fed suggests a potential upward trend in the manufacturing sector. Notably, this regional index has recorded its first positive value in three months.
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● In October, the US leading economic indicator increased more than expected | RTT
● Jobless claims in the US decreased during the week ending November 14 | NY Times
● The US Consumer Comfort Index remains close to its 13-month low | Bloomberg
● The Philly Fed manufacturing index rose in November following two months of decline | RTT
● Minutes from the ECB suggest potential additional stimulus in December | WSJ
● Retail sales in the UK declined in October after a strong September | BBC
Over the past few months, confidence in the US economy has experienced fluctuations, largely due to mixed signals from important indicators. However, drawing firm conclusions about the overall trend by selectively interpreting data can be misleading, especially when assessing recession risks. Recent patterns in the data clearly illustrate this caution. Although some indicators suggest a downturn may be imminent, a diversified look at economic and financial metrics does not corroborate such theories yet.
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● The FOMC minutes concentrate on a potential rate hike in December | Fox
● US housing starts fell to a seven-month low while permits increased | Reuters
● The possibility of increased Eurozone stimulus hinges on oil | Bloomberg
● The Bank of Japan maintains its current policies despite entering a new recession | RTT
● UK retail sales growth in October slowed more than anticipated | Bloomberg
