Economic activity slowed further in October 2019, according to the new Chicago Fed National Activity Index (CFNAI). The index’s 3-month moving average (CFNAI-MA3) fell to –0.31 in October from –0.21 in September.
Forecasts ranged from a low of -0.50 to a high of 0.05. The consensus forecast was -0.20.
Economic growth, though slow, has been propped up largely by housing, according to the Fannie Mae Economic and Strategic Research (ESR) Group. The Group notes that housing should also continue to function as a positive contributor to growth in the near term, as indicated by both new and existing single-family home sales advancing in Q3, as well as pending home sales, permits, and starts. However, persistent supply and affordability constraints continue to hold back household formation, inhibiting housing market activity.
“Even as global uncertainties mount, we continue to expect the domestic economy to produce solid, if not spectacular, growth,” said Fannie Mae SVP and Chief Economist Doug Duncan. “A stronger-than-expected Q3 contributed to the downward revision to our Q4 forecast, as some of the previously expected weakness in trade and inventories appears likely to have been pushed back into this quarter. Still, consumer spending is likely to continue driving the expansion forward, and with the passage of the budget act and a reprieve in trade tensions we’ve revised upward our forecast for full-year 2020 growth. We also continue to expect the Fed to cut interest rates only one more time in the foreseeable future, in early 2020, as a hedge against the sizeable downside risks and to counteract muted inflation.”
Meanwhile, international trade tensions are acting as a negative influence on U.S. economic conditions, based on the Federal Reserve’s October meeting minutes.
Notably, in the Fed’s minutes of the Oct. 29-30 policy meeting, officials states that “the stance of policy, after a 25 basis point reduction at this meeting, would be well calibrated to support the outlook of moderate growth “well calibrated to support the outlook for moderate growth,” however, they “judged that the risks to the forecast for real GDP growth were tilted to the downside, with a corresponding skew to the upside for the unemployment rate.”
“International trade tensions and foreign economic developments seemed more likely to move in directions that could have significant negative effects on the U.S. economy than to resolve more favorably than assumed,” the minutes added