July Monthly Dashboard: The record long expansion isn’t done yet
Monthly Review (Page 3)
Data from the second quarter indicate a slowdown for economic growth to near the average for the expansion at 2.0 percent. Job growth improved in June while wages are rising — feeding a solid pace of consumer spending in spite of potential risks. The business sector is slowing, however, in part due to persistent uncertainty around trade/tariffs and weaker global growth. Still, business surveys point to modest expansion rather than warn of contraction. Equity markets sit just below record highs on optimism about Fed easing in the second half of 2019 even as corporate earnings have weakened this year. The yield curve is still very flat (and even inverted over some portions) and long-term interest rates remain near multiyear lows. Potential Fed easing should move the yield curve away from inversion, but likely means lower interest rates for a time.
Outlook (Page 4)
In response to rising risks for the economy, the Fed appears set to kick off a mid-expansion easing cycle starting at the end of July. While we think the Fed will ease by only 25 basis points, there is a reasonable chance that the Fed will ease by 50 basis points or more before it is finished. If risks from trade/tariffs, slower growth abroad, and below-goal inflation eventually dissipate – as we expect – the economy will continue to grow, inflation should edge higher, and the Fed will start to tighten (modestly) again – pushing interest rates slowly higher. Now in the 11th year of expansion, real GDP growth is likely to moderate – and to slow further in coming years. Still, we do not expect the expansion to end in the near-term in the absence of a significant external shock or policy error.
Go deeper with the full July dashboard linked below.