Fresh growth figures campaigning for a rate increase

The Federal Reserve’s policymaking committee meets today and, although economists don’t expect a rate increase this close to the presidential election, a move in December now appears more likely than ever.

The Federal Reserve’s policymaking committee meets today and, although economists don’t expect a rate increase this close to the presidential election, a move in December now appears more likely than ever.

That’s in part because the economy’s third-quarter performance, revealed last week, was its best quarterly effort in two years.

The gross domestic product gain of 2.9 percent was more than double that of the second quarter. Like a doctor, the Fed pays close attention to any significant change in the numbers that measure its patient’s health.

“This is a good, solid number,” Gus Faucher, deputy chief economist at PNC Financial Services in Pittsburgh, told the New York Times. “The economy is growing at a decent clip. Consumer spending will continue to lead growth, and the fundamentals there remain positive.”

On Monday the Commerce Department said consumer spending rose 0.5 percent in September, the largest gain in three months, outpacing income growth of 0.3 percent.

The government also said the personal consumption price index, which is the Fed’s preferred inflation measure, increased to 1.2 percent for the 12 months that ended Sept. 30. The Los Angeles Times said that was the highest in nearly two years and moved inflation closer to the Fed’s annual target of 2 percent.

"The latest data should be of comfort to the Fed. Spending continues to underpin growth and, combined with positive developments on the labor market and inflation, should enable the Fed to tighten policy in December," Greg Daco, head of U.S. macroeconomics at Oxford Economics in New York, told Reuters.

The Fed will weigh all of those factors, but the November jobs report, due Friday after the central bank’s two-day meeting, will be the week’s most important set of numbers. The median forecast compiled by MarketWatch is that the economy added a praiseworthy 195,000 jobs in October, pushing the unemployment rate down to 4.9 percent.

MarketWatch said the United States has created an average of 178,000 new jobs a month so far in 2016. In other words, the market is keeping up with the demand from Americans who are entering the labor force.

Bernard Baumohl, chief global economist of The Economic Outlook Group, told MarketWatch that the “latest employment figures show employers are struggling to fill more than 5.5 million positions.”

“Nor is job security particularly worrisome,” Baumohl added. “Layoffs are at their lowest levels in nearly half a century.”

The third-quarter GDP report was not the only positive news economy watchers received last week. The Commerce Department said sales of new homes rose by a sturdy 3.1 percent in Sepember, to a seasonally adjusted annual rate of 593,000 units.

"The housing market may not be booming, but it is clearly moving forward at a steady pace," Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pa., told Reuters. "But the big problem is still the lack of inventory. Builders are cautious and tend to do very little speculative construction."

Nonetheless, consumer confidence trended lower in monthly reports from The Conference Board and the University of Michigan. The Consumer Confidence Index for October was 98.6, down from 103.5 in September, and the university’s final Consumer Sentiment Index for October dipped to 87.2 from 91.2 the previous month.

Bloomberg said the reduced optimism suggests that consumer spending may continue to moderate and said the uncertainty the presidential election is generating could be a factor in the public’s lately downbeat mood.

“Consumer confidence retreated in October after back-to-back monthly gains,” Lynn Franco, Director of Economic Indicators at The Conference Board, said in a statement. “Consumers’ assessment of current business and employment conditions softened, while optimism regarding the short-term outlook retreated somewhat. However, consumers’ expectations regarding their income prospects in the coming months were relatively unchanged. Overall, sentiment is that the economy will continue to expand in the near term, but at a moderate pace.”

The University of Michigan’s reading was its survey’s lowest since October 2014.

“The October decline was due to less favorable prospects for the national economy, with half of all consumers anticipating an economic downturn sometime in the next five years for the first time since October 2014,” Richard Curtin, chief economist for the university’s Surveys of Consumers, said in a statement.

“Objectively, the probability of a downturn during the next five years is far from zero — this would be the longest expansion in 150 years if it lasted just over half of the five-year horizon. Nonetheless, the October rise may simply reflect a temporary bout of uncertainty caused by the election. Prospects for renewed spending gains will depend on continued growth in jobs and wages, as well as low inflation and interest rates.”


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