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
July 2020 Economy At A Glance
Wells Fargo Economics & Financial Report / Jul 30, 2020
The recent surge in COVID-19 cases indicates that elected officials re-opened the economy too soon, that too many Americans are flaunting social distancing guidelines, and that the virus is likely to be around longer than we’d hoped.
This Week's State Of The Economy - What Is Ahead? - 31 March 2023
Wells Fargo Economics & Financial Report / Apr 08, 2023
This week brought glimpses of market stabilization after weeks of turmoil. Although consumers seem unfazed by the uproar, tighter credit conditions coming down the pipeline will likely weigh on growth.
This Week's State Of The Economy - What Is Ahead? - 11 December 2020
Wells Fargo Economics & Financial Report / Dec 14, 2020
Emergency authorization of the Pfizer-BioNTech COVID vaccine appears imminent, but the virus is running rampant across the United States today, pointing to a grim winter.
This Week's State Of The Economy - What Is Ahead? - 04 March 2022
Wells Fargo Economics & Financial Report / Mar 08, 2022
February\'s employment data showed the economy had strong momentum, but that seems pretty dated now with Russia\'s invasion of Ukraine and the Fed\'s shift to a more hawkish tone on monetary policy.
This Week's State Of The Economy - What Is Ahead? - 30 August 2024
Wells Fargo Economics & Financial Report / Sep 04, 2024
Revisions to PCE were broad based across the goods and services components and make it less clear that the restrictive interest rate environment is poising a major impediment to household spending.
This Week's State Of The Economy - What Is Ahead? - 02 June 2023
Wells Fargo Economics & Financial Report / Jun 06, 2023
This week, Congress and the president prevented what would have been the first default in U.S. history by agreeing to suspend the debt ceiling through the end of 2024.
This Week's State Of The Economy - What Is Ahead? - 13 October 2023
Wells Fargo Economics & Financial Report / Oct 13, 2023
The Consumer Price Index (CPI) rose 0.4% in September, a monthly change that was a bit softer than the 0.6% increase registered in August. The core CPI rose 0.3% during the month, a pace unchanged from the month prior.
This Week's State Of The Economy - What Is Ahead? - 10 July 2020
Wells Fargo Economics & Financial Report / Jul 13, 2020
The ISM non-manufacturing index jumped 11.7 points to 57.1, reflecting the broadening re-opening of the economy.
This Week's State Of The Economy - What Is Ahead? - 25 March 2022
Wells Fargo Economics & Financial Report / Mar 27, 2022
The fact that capital goods shipments surprised on the upside was one of the few things that went right in this week\'s durable goods report.
This Week's State Of The Economy - What Is Ahead? - 18 September 2020
Wells Fargo Economics & Financial Report / Sep 15, 2020
The details were generally more favorable. The retail sectors hurt most by the pandemic saw gains in August, factory output is growing and soaring homebuilder confidence suggests soft construction data this week may be transitory.
