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November Monthly Dashboard: Slower growth, but perhaps fewer downside risks

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Monthly Review (Page 3)

Economic growth cooled in the third quarter, although only to a better-than-expected annualized rate of 1.9 percent – just under the expansion average. Despite this slowing in overall growth, the job market has remained solid with average gains of more than 170,000 over the past three months – a pace that should continue to reduce unemployment and support consumer spending. Negative trade impacts for the business sector remain a concern, but services, which comprise the majority of economic activity, continue to expand. After its third “insurance” easing this year in November, the Fed signaled that it is likely to keep policy unchanged for a while as long as growth does not slip meaningfully further or trend inflation does not jump sufficiently above its long-term goal of 2.0 percent. Downside risks for the economy appear to have decreased lately (led by a potential “phase 1” trade deal between the U.S. and China) as shown in an uninverting of the yield curve along its entire length, helping to push equity markets up to all-time highs.

Outlook (Page 4)

Despite considerable uncertainty regarding trade and tariffs, economic growth has slipped only to around trend. Solid, if slower, job gains should boost wages modestly and fuel consumer spending – especially on big-ticket items such as houses and autos. The trade war has held back the business sector with nonresidential fixed investment, private inventories, and net exports all detracting from real GDP growth in the second and third quarters – something that is likely to continue until there is a resolution. The prospects of a trade deal between the U.S. and China (and a potential rebound in business activity) create some upside for growth in 2020. A wider deal that rolls back tariffs could stir business investment out of its doldrums to boost GDP growth above our forecast. Still, there remain risks to the downside – led by a worsening of the trade war – that could cause the economy to slow more than expected. And uncertainty from the U.S. elections next year may hold growth back further. The odds of a downturn over the next year have receded to around 20 percent with the yield curve moving out of inversion and further signs of continued, albeit modest, economic growth.

Go deeper with the full November dashboard linked below.

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