Incoming economic data demonstrate that while the economy is losing momentum, activity remains resilient. Consumer confidence rose to the highest level in six months in September, and stripping out some volatility in new orders for durable goods revealed stabilization in demand and strength in Q3 equipment spending. The third release of second-quarter GDP growth also included revisions that put the economy in a stronger position coming out of the pandemic-induced recession than previously thought. Consumer spending in particular has been unwavering, with real personal spending rising 0.1% in August.
With little indication that households have lost their staying power, we have adjusted our forecast. The current resilience in economic activity does not dismiss an eventual recession, but it does make it less likely that a recession will start by the beginning of next year. Near-term strength also means more monetary tightening will likely be necessary to slow growth sufficiently enough to quell elevated inflation. As we detail in this week's Interest Rate Watch, we now project the FOMC to hike its federal funds rate by an additional 125 bps this year and another 50 bps at the start of next year, which would bring the target range of the federal funds rate to 4.75%-5.00% by March (chart).
Importantly, we still see the economy falling into a mild recession next year, but we now expect it to take place slightly later, beginning in the second rather than first quarter, as the lagged effects of monetary policy begin to bite more meaningfully into consumption and weigh on the ability of firms to hire. An important consideration is that the economic trade off for growth today is the potential for a worse hit to households later. Consumers have increasingly relied on their balance sheets to spend with wage gains not keeping pace with inflation. The longer that lasts, the larger the deterioration in household finances. For this reason, we are now looking for a slightly larger decline in real personal consumption expenditures in our latest projections with a peak-to-trough decline of 1.0% compared to 0.6% previously
This Week's State Of The Economy - What Is Ahead? - 09 September 2022
Wells Fargo Economics & Financial Report / Sep 10, 2022
The ISM services index came in stronger than expected, and the underlying details pointed to service sector resilience with business activity and new orders notching their highest reading this year.
This Week's State Of The Economy - What Is Ahead? - 12 August 2020
Wells Fargo Economics & Financial Report / Aug 15, 2020
The consumer has been a bright spot in the recovery so far, but with jobless benefits in flux and no clear path for the long-awaited stimulus bill, the support here could fade.
This Week's State Of The Economy - What Is Ahead? - 06 March 2020
Wells Fargo Economics & Financial Report / Mar 07, 2020
An inter-meeting rate cut by the FOMC did little to stem financial market volatility, as the number of confirmed COVID-19 cases continued to climb.
This Week's State Of The Economy - What Is Ahead? - 27 November 2019
Wells Fargo Economics & Financial Report / Nov 28, 2019
A series of U.K. general election polls released this week continue to show Boris Johnson’s Conservative Party with a significant lead over the opposition Labor Party.
This Week's State Of The Economy - What Is Ahead? - 03 March 2023
Wells Fargo Economics & Financial Report / Mar 07, 2023
Looking at Q4 GDP, Australia\'s economy grew by less than expected, GDP was flat for the quarter in both Canada and Switzerland, and Sweden\'s economy contracted in the final quarter of last year.
This Week's State Of The Economy - What Is Ahead? - 25 October 2019
Wells Fargo Economics & Financial Report / Oct 26, 2019
Sales of existing homes fell 2.2% to a 5.38 million-unit pace in September, but sales and prices were still up enough in the quarter that they will add solidly to Q3 GDP growth.
28 January 2021 Economic Outlook Report
Wells Fargo Economics & Financial Report / Feb 08, 2021
In our recently released second report in this series of economic risks, we focused on the potential of demand-side factors to lead to significantly higher U.S. inflation in the next few years.
This Week's State Of The Economy - What Is Ahead? - 05 June 2020
Wells Fargo Economics & Financial Report / Jun 09, 2020
Data this week continued to suggest the U.S. economy hit rock bottom in April. Still, it is a long road to recovery and the pickup in economic activity will be gradual.
This Week's State Of The Economy - What Is Ahead? - 12 August 2022
Wells Fargo Economics & Financial Report / Aug 13, 2022
The FOMC has made it clear that it needs to see inflation slowing on a sustained basis before pivoting from its current stance. The data seems to be going in multiple directions all at once.
This Week's State Of The Economy - What Is Ahead? - 31 January 2020
Wells Fargo Economics & Financial Report / Feb 01, 2020
Mexico’s economy has slowed notably over the last year, with the economy contracting again in Q4, indicating a full-year contraction for 2019.
