Economic outlook still spooky despite recent treats

Current Trends

Much stronger-than-expected hiring and retail spending in September suggest that activity continues to run too hot to meaningfully slow inflation in the near term. This complicates policy decisions for the Fed despite signs that corporate profits are waning in response to even tighter financial conditions and rising interest rates. The way forward for consumers may be tougher, too, as more households are turning to credit with excess savings nearly exhausted and student loan payment resuming. For now, the economy continues to hum along despite the building clouds on the horizon.

Future Outlook

Economic growth remained robust heading into the fourth quarter, but headwinds for consumers and businesses continue to build and should slow economic activity sharply before the end of the year. Interest rates have climbed further, stifling the housing sector and business investment, while many households are hitting spending limits with pandemic savings exhausted and debt levels rising. For these reasons, we believe a recession will unfold over the first half of 2024, although the length and severity of the projected downturn should be relatively mild.