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October Monthly Dashboard: Consumers mostly offsetting the drag from a weaker business sector

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Monthly Review (Page 3)

Key parts of the economy continue to move in divergent directions. The business sector (especially manufacturing) weakened further as trade/tariff disruptions have led to a contraction in manufacturing and slower expansion for services. Consumers continue to drive positive economic growth with faster spending, led by big-ticket expenditures on autos and homes in response to reduced financing rates. There are signs that the labor market is flagging a bit with a slower pace of hiring, reduced job openings, and more tepid wage growth. Still, the unemployment rate is at a 50-year low and indicates that most workers have jobs and should continue to spend. Equity markets have weathered the recent uptick in uncertainty (both economic and geopolitical) and sit only a little below record levels. Interest rates have also been volatile but long-term rates have climbed from their recent lows and, together with Fed easing, have steepened the yield curve modestly. The modest inversion of the past few months is mostly gone.

Outlook (Page 4)

While the outlook for the economy and financial markets continues to remain uncertain because of geopolitical risks, the consumer sector is expected to be the strongest part through at least 2020. Job gains, while edging down on average, remain solid for an expansion in its eleventh year and should continue to reduce unemployment readings to levels not seen in decades. Lower interest rates are expected to keep sales of autos and homes near recent elevated levels, further supporting improved retail spending. Given the projected positive trends from consumers, business sector conditions would have to deteriorate much more sharply to pull the economy into a recession in the near term. Still, geopolitical risks abound and something could easily go wrong – putting the economy at risk of a downturn. For now, however, the odds of a downturn over the next year remain only around 30 percent with continued positive, but modest, economic growth the baseline forecast.

Go deeper with the full October dashboard linked below.