Gren Invest: A clear view of America’s economy
The most recent signals from the U.S. economy depict a landscape that isn’t weakening sharply, or gaining much momentum, but rather is trudging through a slow and uneven patch that has kept policymakers and investors mollified. Two months later, the September jobs report, which had been delayed by previous disruptions, revealed that the country added about 119,000 jobs more than twice what economists had forecast. But the unemployment rate continued to inch up, reaching 4.4 percent, a sign that while businesses are hiring, the overall labor market continues to be less robust than headlines suggest. Hours worked and participation rates increased only modestly, suggesting that the job market is growing slowly.
Consumer spending, which has been the surest engine of the American economy for years, is holding up even as household budgets come under pressure from higher prices. Many retailers and service providers said that activity held roughly stable as they entered the year’s final weeks. Yet, just under the surface, Americans are behaving more cautiously. The consumer confidence index fell to 88.7 in November, its weakest reading since April, as concerns about inflation and politics weighed on people’s outlooks and the long government shutdown continued to hurt their psyches. This decline is significant because confidence can drive buying as much as income does.
Economists are now lowering their forecasts of national growth. A wide range of forecasters see United States G.D.P. growth coming in near 1.8 percent this year, slowing to about 1.5 percent in five years’ time. These figures are not the mark of an economy that is slipping into recession, but they do represent a clear shift away from the rapid bounce back after the pandemic to something less frantic. Inflation, though lower than its peak, persists at levels above where Federal Reserve officials would like. The mix of tepid growth and continued price pressure puts the central bank in a tight spot as it considers when to change policies next.
The confusing picture on jobs adds one more layer of complexity. While the gain exceeded estimates, wage growth has yet to pick up substantially and some industries continue to face uneven demand. Industries linked to manufacturing and the production of goods are volnerable to higher borrowing costs, while hiring in service industries is more stable. The small increase in unemployment could be a sign that companies are starting to reduce or postpone even if they’re not outright trimming their expansion plans, or that they are waiting for further signs of a slowdown before deciding to cut staff. This leads to a labor market that is cooling gradually rather than lurching downward.
How demand evolves will be crucial in determining the economic path in the months ahead. Household spending hasn’t stopped, but it’s slowing down and getting a lot more selective, as people choose what goods or services to do without. Analysts are paying close attention to the forthcoming retail sales data, as the holiday season is typically when analysts get an early read on whether families feel confident, or strapped. A strong showing would support growth into early next year, while a sizable pullback could strengthen concerns that higher prices and tighter budgets are at last beginning to bear down on consumers.
Markets are closely watching for a response. Investors have been comforted by signs that inflation might still break their way, but they are also keenly aware that strong job numbers could scuttle any plans to ease policy in the near term. The delicate equilibrium between cooling price pressures and signs of ongoing economic resilience has grown more difficult to predict. Now traders are watching every data release more closely because they know even little surprises can alter what markets expect about interest rates, consumer spending and overall financial conditions.
At this stage, there are several indicators that will show whether the economy gains stronger footing or shifts into a gait. New information on retail sales, inflation and jobless claims will help set the story line in the short term. Economists are also watching business investment, which could falter if companies remain unsure about the policy environment. And simultaneously, household sentiment could either stabilize or deteriorate depending on how prices shake out in early winter.
So far, the American economy is defined by sluggish growth, wary consumers and a job market that is still growing but more slowly. It isn’t dramatic scenery, but it is significant: The kind of stretch ahead one of steady progress or slower going will be determined by the relationship between spending power and price pressure.