US Business Cycle Risk Report - Wednesday, Sept. 20

Recent hurricanes have taken a bite out of US economic momentum, but the trend is only battered rather than broken. Surveying a broad set of indicators still points to moderate growth for the near term. Recession risk, in short, remains low for the US, based on the numbers published to date.

“It’s clear given [last week’s] revised numbers consumer spending won’t be as buoyant in the third quarter as it was in the second despite high consumer confidence and record-high stock prices,” noted Scott Anderson, Bank of the West’s chief economist.

Indeed, last week’s updates for industrial production and retail sales in August reflect a softer rate of growth. Housing starts also dipped last month. Note, however, that newly issued building permits for housing perked up to the highest level since January, a clue for anticipating that construction activity will strengthen in the months ahead.

Overall, it’s premature to see the latest weakness in some corners as the start of deeper trouble for the macro trend. Most indicators continue to trend positive for year-over-year changes and in some cases the pace has quickened. The annual rate of growth in the real monetary base has turned mildly positive for the first time in more than a year. In addition, the ISM Manufacturing Index firmed up in August to a six-year high.

The question is whether last month’s downside bias for the year-over-year growth rate in industrial activity and retail spending is a temporary setback? That’s the prevailing theory and one that’s supported by the moderately upbeat profile of economic activity for the US overall.

Forecasters have downgraded the outlook for second-quarter GDP growth to the low-2% range. CNBC’s latest survey (Sep. 19) of Wall Street economists shows a median estimate of 2.4% for Q3, down from 3.0% in Q2. Yesterday’s update of the Atlanta Fed’s GDPNow estimate for Q2 output is a bit softer at 2.2%.

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Disclosure: Note: ETI is a diffusion index (i.e., an index that tracks the proportion of components with positive values) for the 14 leading/coincident indicators listed in the table above. ...

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