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March Monthly Dashboard: The economy slows, but financial markets are positive

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  • illustration of a future scorecard dial

Monthly Review

Economic data were generally softer over the past month with a sharp slowdown in job gains, sluggish headline retail sales, and weaker monthly core inflation. The trend in hiring remains solid, however, while faster wage growth and rising incomes should continue to prop up consumer spending. Moreover, business surveys (while down slightly from last year’s peaks) point to ongoing expansion led by strong order activity. The Fed doubled down on its dovish pivot in March by signaling no rate hikes during 2019 and announcing a sooner end to quantitative tightening than financial markets had previously expected. Until there are clear signs of faster inflation, the Fed appears set to remain on the sidelines. Equity market indexes continue to trend higher and are only 3-5 percent away from the peaks of last year.

Outlook

While the odds of a recession over the next year or so remain below 50 percent, the end game for the current expansion is slowly coming into view. Higher interest rates, waning fiscal stimulus, slower global growth, and idiosyncratic risks (i.e., Brexit, trade/tariffs, etc.) are expected to reduce real GDP growth to a below-trend pace after 2019. Job gains, auto sales, and home sales are projected to edge slowly downward through 2021 as higher interest rates weigh on consumers and businesses. For the near-term, the Fed has signaled a pause in rate tightening until there are signs of faster inflationary pressure in the economy. An extended pause could put off a full inversion of the yield curve and prolong the late stage of this expansion. But faster-than-expected inflation could prompt additional tightening from the Fed — bringing nearer the end of this expansion.

Go deeper with the full March dashboard linked below.

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