The U.S. economy is outperforming expectations as the race for the White House enters its final days.
The Conference Board’s leading economic index declined again in September even as economic data continues to come in better than forecast.
The index dropped to 99.7 (the baseline is 100 set in 2016), a 0.5% decline, following August’s 0.3% decrease. For the six-month period ending in September, it declined at a 2.6% annual rate, up from the 2.2% decrease in the previous six months.
“Weakness in factory new orders continued to be a major drag on the US LEI in September as the global manufacturing slump persists,” said Justyna Zabinska-La Monica, senior manager, business cycle indicators, at the business organization. “Additionally, the (bond) yield curve remained inverted, building permits declined, and consumers’ outlook for future business conditions was tepid.”
“Gains among other LEI components were not significant enough to offset weakness among the four gauges mentioned above, Zabinska-La Monica added. “Overall, the LEI continued to signal uncertainty for economic activity ahead and is consistent with The Conference Board expectation for moderate growth at the close of 2024 and into early 2025.“
The Federal Reserve will offer up its own assessment of the current state of the economy on Wednesday when it releases its “beige book” for September. This is a survey of economic conditions around the country from the Fed’s regional banks.
The Fed lowered interest rates by a half point in September and is expected to continue reducing rates when it meets in early November. But the economy has outperformed expectations since then and employers added 254,000 jobs in September, far more than was forecast.
“The good news, however, is that the movement on the economy has been to the upside, which has helped to ease fears of recession, and, with inflation now almost back on track, we have flipped back to a world where good news on the economy is once again good news for financial markets, as it is consistent with both the soft landing and the Fed still easing rates,” said Richard de Chazal, macro analyst at William Blair.
Inceed, most economists do not foresee a recession in the next 12 months, with Goldman Sachs recently lowering the odds to 15% from 20% previously. The lower number is in line with historical probabilities of a recession.
“It is hard to believe but it appears with every passing number that the Fed has been successful in reducing inflation while avoiding a recession … so far,” said economist Hugh Johnson, chairman emeritus at Graypoint LLC.
The International Monetary Fund releases its latest global outlook on Tuesday with the U.S. still favored to be the poster child for economic growth. But the report is likely to warn of slowing growth worldwide, with concerns mounting about China’s economy.
Back in the U.S., this week will bring new data on housing, with existing home sales for September on Wednesday and new homes sales on Thursday. While the Fed’s move to lower interest rates has helped cut borrowing costs, including those for mortgages, the housing sector still faces a severe affordability crisis with high home prices and limited, though improving, levels of inventory.
“Turning to housing, optimism is building now that the Fed has begun its easing cycle, though we look for little change in trend in home sales last month,” said Sam Bullard, managing director and senior economist at Wells Fargo’s corporate and investment banking group. “Existing home sales fell 2.5% in August as high financing costs continue to play a role suppressing sales, while ongoing home price appreciation is adding fuel to the fire. We look for a 0.8% m/m decline in September, marking the sixth sequential drop in existing home sales in the past seven months.”
“Prospects for new home sales look a bit brighter last month – our call +0.6% – with home inventory remaining relatively high,” Bullard added. “With home buyers and builders anticipating further rate easing in 2025, there is likely to be more availability of homes which should help the housing market come out of its stagnant trend.”
Friday brings the final consumer sentiment numbers for October from the University of Michigan with expectations they will show a slight improvement over the prior month.
Hovering over all the economic reports is the uncertainty about the outcome of the 2024 race for the White House. Former President Donald Trump and Vice President Kamala Harris have outlined sharply different plans for the economy, and most polls show the race to be too close to call.