Growth, Inflation & Policy
As of October 23, 2023
Economic Activity
- The Conference Board’s Leading Economic Index (LEI) has been negative for 18 consecutive months and continues to signal a looming recession and subsequent slowdown in economic activity. However, estimates for the severity of the recession eased over the quarter, with the Conference Board forecasting a short and shallow recession.
- Other economic indicators paint a mixed picture. While still in contractionary territory, the ISM Manufacturing PMI ticked up to 49 in September, indicating that the slump in manufacturing activity may have bottomed. ISM Services remains resilient, but often tends to lag Manufacturing, particularly into periods of economic slowdown.
U.S Inflation
- U.S. inflation is likely to remain sticky for a while. Due to base effects, the so-called ‘easy’ inflation prints are now behind us, and it will become increasingly harder for the Federal Reserve to bring inflation back down to 2.0%, as evidenced by the uptick in monthly inflation prints over the quarter.
- But there is good news. If easing in year-over-year rent prices continue, there should be a gradual but consistent flow-through of housing disinflation to headline CPI
- Energy prices, which have been a sharp disinflationary tailwind for most of the year, are starting to rebound. However, energy represents only 6.0% of the CPI basket, a smaller portion than housing and is thus likely to have less influence than housing in whether inflation continues to tick upwards.
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