The economy is expanding at an impressive pace
In 1H2018, tax cuts helped to boost disposable income and drive a surge in consumer spending. Very low jobless claims filings and a high number of job openings in September-at 7.0 million4–are signaling a tighter labor market, although job growth to-date is still holding steady. GDP growth, while strong now, is expected to gradually slow in 2019/2020, but there are some risks that could lead to a further deceleration beyond what is forecast. A more rapid labor market tightening, combined with recently-enacted tariffs, may put further pressure on inflation and lead to more rate hikes from the Federal Reserve. Consumers would likely pull back on their credit demand and spending, particularly if prices begin rising faster than income.
Economists will also look for signs of a looming recession. Certain economic indicators have historically led recessions by several months, such as initial fillings for unemployment insurance benefits, upward unemployment rate movement, a spike in oil prices and an inverted yield curve,* which successfully identified every downturn in the last 60 years. Other indicators may be more telling today. Economists, for example, will watch closely for a change in the Conference Board's Leading Economic Indicators-a weighted average of 10 top economic indicators that has dipped below zero prior to seven of the past eight recessions-especially if it coincides with an inverted yield curve and higher-term corporate bond risk premiums. This confluence of trends may be more likely to foretell a contraction on the horizon in the current economic climate.
For now, consumers appear ready to start the holiday shopping season with gusto as their spending-fueled economic activity continues.
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