Signs of Economic Slowing

The latest Conference Board Consumer Confidence Index’s headline number is 135.7 (1985=100), down from 137.9 in October. The softening this month could be the beginning of a downtrend – or at a minimum is showing a growing consumer uncertainty. Still, the index level is very close to all time record territory.

The second estimate of 3Q2018 GDP was unchanged at 3.5%. But consider the build of the 3.5%:

• consumption for goods and services declined adding 2.5 % to GDP.
• trade balance worsened deducting 1.9 % from GDP
• inventory change added 2.3 % to GDP (inventory change is part of domestic investment)
• domestic investment had added 0.3 % to GDP
• federal spending added 0.4 % to GDP

Inventory build is a sign of a slowing economy – and if we ignore this element GDP would only have improved 1.0 %

Real Disposable Personal Income is up 2.8 % year-over-year (published 2.9 % last month and revised to 2.7 %), and real consumption expenditures is up 2.9 % year-over-year (published 3.0 % last month and revised to 2.8 %). The backward revisions this month were mixed. Overall, the expenditure data is little different than last month. The real issue with personal income and expenditures is that it jumps around – and one cannot take any single month as fixed or gospel.

The National Association of Realtors (NAR) seasonally adjusted pending home sales index remains in contraction year-over-year. Our analysis shows continued worsening of growth. You might be surprised what the NAR said:

… existing-home sales this year [are expected ] to decrease 3.1 percent to 5.34 million, and the national median existing-home price to increase 4.7 percent. Looking ahead to next year, existing sales are forecast to decline 0.4 percent and home prices to drop roughly 2.5 percent …

Participants commented on a number of risks and uncertainties associated with their outlook for economic activity, the labor market, and inflation over the medium term. Some participants viewed economic and financial developments abroad, including the possibility of further appreciation of the U.S. dollar, as posing downside risks for domestic economic growth and inflation. Several participants were concerned that the high level of debt in the nonfinancial business sector, and especially the high level of leveraged loans, made the economy more vulnerable to a sharp pullback in credit availability, which could exacerbate the effects of a negative shock on economic activity. The potential for an escalation in tariffs or trade tensions was also cited as a factor that could slow economic growth more than expected. There were upside risks identified including greater than expect effects of the physical stimulus.

The barometer posted a 0.3 percent decline in November on a three-month moving average (3MMA) basis. This marks the barometer’s first month-over-month drop since February 2016 and adds to the chorus of growing concern of slowing U.S economic expansion. On a year-over-year basis the barometer is up 2.8 percent (3MMA), a marked slowdown in the pace of growth from earlier this year.