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May Monthly Dashboard: Trade risks build

Monthly Review (Page 3)

Weaker recent economic data suggest that the first quarter’s plus-3.0 percent growth rate is not likely to continue into the current quarter. Retail spending surprisingly declined during April, while business surveys indicated reduced orders activity and production from the private sector, and industrial production fell for the third month out of the past four. After reaching new peaks, broad equity indices fell modestly as U.S.-China trade tensions worsened. Long-term interest rates slipped in response to flight to safety capital flows, causing another small and short lived yield curve inversion in mid-May. Still, the labor market remains positive with job gains averaging more than 200,000 per month so far in 2019, a 50-year low for the unemployment rate, and rising wages — all providing a boost to consumer activity. The Fed remained on hold in May and signaled that monetary policy is unlikely to change in the near term, with unemployment low and inflation below its long-term goal.

Outlook (Page 4)

Economic activity is set to decelerate after a strong first quarter, although we expect growth to remain at a modestly above-trend pace for this year. Economic data suggest that the economy slowed in the second quarter, but the usual causes of economic declines – including supply shocks and overaggressive Fed tightening – do not appear to be present to a significant degree in 2019. Most importantly, the job market remains solid and this should help to buoy consumer spending – the largest part of the economy. Moreover, the Fed is projected to remain on hold for some time with core inflation below its long-term goal and expected to move only gradually higher by year-end. Downside risks to the outlook remain, however, led by renewed tariff hikes between the U.S. and China, slowing global growth, and Brexit. While these risks may detract a bit from U.S. growth, they shouldn’t push the economy into recession in the near-term — unless they worsen significantly.

Go deeper with the full May dashboard linked below.

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