Incoming economic reports continue to show that U.S. growth is holding steady at a moderate pace in the fourth quarter. A lot can change between today and Jan. 30, when the government’s initial Q4 GDP report will be published. But the data available today suggests that output will expand at or near Q3’s 2.1% increase.
Q4 growth is currently expected to increase 1.9%, based on the median nowcast for a set of estimates compiled by The Capital Spectator. That marks a slight improvement over the median 1.8% nowcast from earlier in December. Compared with Q3’s 2.1% rise, however, the estimate for the final three months of 2019 shows a fractionally softer gain.
Although its premature to call for a pickup in U.S. economic activity, the median nowcast strengthens the case for expecting that growth will hold at a roughly 2% pace. That’s well below the 3%-plus pace briefly touched at times in recent years, but a 2% expansion is strong enough to keep the decade-long expansion — the longest on record — humming for the foreseeable future. In turn, today’s numbers continue to reflect a low probability that a contraction is near. As outlined last week’s business-cycle profile, the recent recession scare increasingly appears to be a false signal, at least for now.
That’s also the message in this week’s update of the Chicago Fed National Activity Index for November. The benchmark’s three-month average rebounded last month, rising for the first time since August. The -0.25 print still reflects below-trend growth, but the latest uptick puts more distance between the index and the -0.70 mark that signals recession.
“The economy is still solid,” says Diane Swonk, Grant Thorton’s chief economist. “What this economy has lacked in momentum, it has made up for in stamina, and the Fed gave it a shot of adrenaline this year with three rate cuts.”
An upbeat outlook also applies when looking at GDP changes through a rolling one-year lens. based on The Capital Spectator’s average point estimate via a set of combination forecasts. Today’s projection sees output ticking up to 2.2% in Q4, fractionally above the 2.1% increase in Q3. Note, however, that a mild downward bias in the trend is expected to resume in 2020.
The key variable as the year winds down is whether the partial ceasefire in the US-China trade war will deliver a deal next month. If it does, the economic outlook will improve. By contrast, if the latest progress is another false dawn, keeping macro expectations in check, and perhaps even back-pedaling a bit, is warranted.
Political risk, in short, remains the main risk factor. The source of this risk, of course, is Donald Trump’s mercurial decisions on trade policy — an input variable that dominates everyone’s modeling efforts for peering into the year ahead. Meantime, it’s fair to say that a modest bit of optimism is reasonable as the New Year’s celebration approaches. The main mystery: Is a hangover waiting for us when we wake up in January?