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Brief Lull or Bigger Slowdown?
U.S. gross domestic product is expected to advance at a 1.6% pace in the third quarter, a marked slowdown since the start of the year.
- The good: The economy is cranking out jobs, supporting consumer spending. The Fed has cut rates, boosting the housing market. Both consumers and housing are expected to contribute to another quarter of growth, extending the longest U.S. economic expansion on record.
- The not-so-good: Consumer spending slowed from its rather torrid 2Q pace, a possible sign of caution. Business investment is expected to decline again as executives hold back amid slowing global growth and trade-related uncertainty. And demand for American exports has softened.
- “This report takes on elevated significance because it will be the last significant economic data the [Federal Reserve] will see before concluding its meeting on Wednesday afternoon. … These data could impact the tone of the post-meeting statement and Fed Chair Powell’s press conference,” says Deutsche Bank’s Brett Ryan.
WHAT TO WATCH TODAY
The ADP employment report for October is expected to show a net gain of 100,000 jobs from the prior month. (8:15 a.m. ET)
U.S. gross domestic product for the third quarter is expected to advance at a 1.6% pace from the prior quarter. (8:30 a.m. ET)
Germany’s consumer-price index for October is out at 9 a.m. ET.
The Bank of Canada releases a policy statement at 10 a.m. ET. Officials are likely to stand pat.
The Federal Reserve releases a policy statement at 2 p.m. ET and Chairman Jerome Powell holds a press conference at 2:30 p.m. ET.
China’s official manufacturing index for October is out at 9 p.m. ET.
TOP STORIES
What Do You Say, Jay?
Federal Reserve officials are leaning toward cutting their benchmark interest rate for the third time this year at the conclusion of their two-day meeting today. The big question is how they frame what happens after that. Here’s what to watch from the WSJ’s Nick Timiraos.
The statement: Tweaking the language in the Fed’s postmeeting statement could provide a strong signal about officials’ outlook or their intentions. The Fed has issued some variant of its current statement by saying at meetings in June, July and September that it would “act as appropriate” to sustain the economic expansion. The Fed could change this language to signal what would prompt more rate cuts.
The press conference: Chairman Jerome Powell has repeatedly characterized the Fed’s current moves in the context of so-called insurance cuts of 1995-96 and 1998. In both those episodes, the Fed cut rates just three times and avoided recession. If the Fed cuts rates Wednesday, he is likely to face questions over whether the latest chapter on insurance cuts has ended.
Housing Shows (a Little) Strength
The U.S. housing market is gaining modest strength thanks to lower mortgage rates. Average national home prices picked up slightly, the number of Americans who own a home grew and pending home sales rose in a trio of separate indicators, Laura Kusisto reports.
- The S&P CoreLogic Case-Shiller National Home Price Index for August was up 3.2% from a year earlier.
- The homeownership rate ticked up to 64.8% in the third quarter, matching the highest level in five years and within striking distance of its long-run average of 65.2%.
- Pending home sales, a forward-looking indicator based on purchase contracts signed, rose 1.5% in September, the second consecutive positive month.
One other positive sign for the economy: Household formation is looking fairly robust. “The current rebound in household formation, starting in late 2017, is an indication that people have enough resources and self-confidence to start getting their own homes at more historically normal rates, whether that means moving out of their parents’ home or no longer splitting the rent with roommates,” says Zillow economist Jeff Tucker.
Feeling Sorta Kinda Pretty Confident
U.S. consumer confidence fell for the third straight month in October. Generally, Americans think things are quite good at the moment. They are much less optimistic about the future. The Conference Board’s present situation and expectations subindexes posted close to their widest gap since 2001.
Both measures of confidence are still fairly robust. And, importantly, perceptions of the labor market are strong. The so-called labor-market differential, the difference between those who think jobs are plentiful versus hard to get, rose to the second-highest level of the expansion.
“The news on the overall mood of the consumer is good, and critically so. The importance of the consumer engine for the economy really can’t be overstated at this point, with exports and business investment still languishing,” says Jim Baird, CIO at Plante Moran Financial Advisors.
Auto Uh-Oh
General Motors executives said Tuesday they expect the U.S. vehicle market to contract next year, and believe volatility will persist in GM’s two other big markets: China and South America. GM lowered its full-year profit outlook, saying the 40-day strike at its U.S. factories wiped out nearly all its free cash flow for the year and will cost the Detroit auto maker close to $3 billion in lost earnings, Mike Colias reports. Last week, Ford cut its profit outlook for 2019, citing in part a tougher competitive environment in the U.S.
Brexit Election
British lawmakers voted overwhelmingly to hold a December election, a roll of the dice by parties across the political spectrum to try to either cancel or deliver Brexit after years of wrangling in Parliament. The decision paves the way for one of the most unpredictable and divisive national ballots Britain has seen in a generation. Pro-Brexit Prime Minister Boris Johnson’s Conservative party currently leads in the polls, though not with a clear majority, Max Colchester reports.
China: Less Savings, More Debt
China has long been a nation of savers. For decades, its citizens socked away much more of their incomes than Americans do. The pool of capital that was created powered China’s economic rise. Now, 40 years into the greatest accumulation of money the world has ever seen, the pattern is reversing. The impact will be felt world-wide, in ways good and bad, James T. Areddy reports.
Rah-Rah Rauh
The White House Council of Economic Advisers is welcoming a new principal chief economist next week. Joshua Rauh, a finance professor and senior fellow at Stanford University’s Hoover Institution, has spent the past 15 years in academia studying fiscal policy, including the effects of unfunded pension liabilities on state and local governments and the effects of taxes on businesses and individuals. He joins the CEA in a key role at a time when the three-member council is down one official: Tomas Philipson has been serving as a member and acting chairman since former chairman Kevin Hassett left earlier this year. Economist Tyler Goodspeed holds the second slot. Mr. Rauh starts next week. —Kate Davidson
WHAT ELSE WE’RE READING
The American Dream is alive and well. “We find that children of immigrants from nearly every sending country have higher rates of upward mobility than children of the U.S.-born. Immigrants’ advantage is similar historically and today despite dramatic shifts in sending countries and U.S. immigration policy,” Ran Abramitzky, Leah Platt Boustan, Elisa Jácome and Santiago Pérez write in a National Bureau of Economic Research working paper.
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