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September Monthly Dashboard: The Fed is easing, but trade and global growth are holding the economy back

  • Illustration of current scorecard
  • illustration of future scorecard

Monthly Review (Page 3)

Recent economic data show that the manufacturing sector of the U.S. economy is likely in a downturn (from both the trade war and slower growth abroad), but the rest of the economy is growing at a solid (albeit more modest) pace. Consumer spending has accelerated in recent months as rising incomes and lower interest costs have spurred additional buying activity. The trend in job gains has slowed this year, but this was likely overdue with the record-long expansion now in its eleventh year. The service sector (a significantly larger share of the economy than manufacturing) has shown only minor effects from the trade/tariff disruptions while small businesses continue to expand. Still, storm clouds from fading global growth and rising trade tensions caused the Federal Reserve to cut interest rates in September – and it may move to ease again later this year to stave off a further weakening in economic conditions. The yield curve remains partially inverted, warning that recession risks are elevated. But equity markets have responded positively to continued economic growth and Fed easing and are close to record levels.

Outlook (Page 4)

The outlook for the economy and financial markets is more uncertain than usual, depending crucially upon the course of geopolitical events (especially trade/tariff decisions and the potential for further military actions in Middle Eastern oil production/refining regions). And now domestic political concerns have jumped in importance. Our best guess remains that the Fed eases modestly further and that trade/tariffs don’t worsen appreciably from here. This would result in growth around trend, a small rise in inflation, and a modest uptrend in longer-term interest rates (steepening the yield curve a bit and reducing recession fears). But the odds of any particular economic scenario have fallen, given the rise in geopolitical uncertainty. A worsening of the trade war, for example, would weaken economic conditions further and could help push the economy into recession in the next year or so. On the other hand, a resolution to the trade war would reduce the downward pressure on multinational business growth, helping to boost economic activity. Despite these uncertainties, the odds a downturn over the next year remain only around 30-35 percent, given the still positive signs shown by the most parts of the economy and the lack of a definitive recession signal from the yield curve so far.

Go deeper with the full September dashboard linked below.