Economic Update – Q4 2018
What we’re watching:
As we move deeper into this long expansion, each economic data point is being scrutinized for signs of deterioration. We expect to hit cyclical highs in areas such as manufacturing and employment at some point next year, but we have yet to see evidence of that in 2018.
With the Fed raising interest rates for the eighth time for this cycle in September, there is a growing delegation, particularly in the bond market, that believes a pause may be in store for mid-2019.
While many investors believed that the tariff tit-for-tat with China would be resolved in a timely manner, it appears that a resolution could be more difficult to achieve without some economic pain.
- U.S. GDP for the second quarter of 2018 came in at +4.2% growth annualized; this compares with the first quarter’s +2.2% reading. Driving the acceleration were exports, which grew +9.1% in the quarter, as well as consumer and government spending, which were +3.8% and +2.3% respectively.
- Expectations are for growth of approximately +4.0% in the third quarter, as economic data released over the past several months points to continued strong consumer spending and fixed investment.
- Manufacturing remains in expansionary territory, as the Institute for Supply Management’s manufacturing survey closed the quarter at 59.8. The measure has remained close to 60 for the last several months, and has been supported by production and employment data.
- Eurozone manufacturing has continued to weaken after cresting the 55 mark in July, given widespread decline in export orders across several countries; modest pricing pressures weighed on the report as well.
Employment & Inflation
- Employment remains strong, with the U.S. economy adding an average of 189,000 jobs per month in the third quarter. The unemployment rate closed the quarter at 3.7%, and wage growth remained in check at +2.8% year-over-year.
- Consumer prices continued to trend higher through the third quarter, increasing +0.2% month-over-month, and +2.7% year-over-year in the month of August. Even for ex-food and energy, the measure grew +2.2% year-over-year.
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