Measured growth a sign of optimism and confidence

Steady, moderate growth — that’s what the Federal Reserve and The Conference Board are seeing in the U.S. economy two weeks before Election Day.
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Steady, moderate growth — that’s what the Federal Reserve and The Conference Board are seeing in the U.S. economy two weeks before Election Day.

Steady, moderate growth — that’s what the Federal Reserve and The Conference Board are seeing in the U.S. economy two weeks before Election Day.

Turmoil and rancor mark the presidential contest between Democrat Hillary Clinton and Republican Donald Trump, but Americans continue to demonstrate that they have enough confidence to keep the economy growing at a measured and manageable pace despite the din and the uncertainty it fosters.

“Most districts indicated a modest or moderate pace of expansion,” according to the latest Beige Book survey of regional activity that the Fed released last week. “Outlooks were mostly positive, with growth expected to continue at a slight to moderate pace in several districts.”

The Fed also said in the Oct. 19 report, which covers the period from late August until early October, that wage increases remain moderate in the country as a whole.

"Wage growth held fairly steady at modest levels, although some districts reported rising pressure for certain sectors," the central bank said.

Meanwhile, The Conference Board reported Thursday that its Leading Economic Index, which measures the health of the economy, rose 0.2 percent last month.

“The U.S. LEI increased in September, reversing its August decline, which together with the pickup in the six-month growth rate suggests that the economy should continue expanding at a moderate pace through early 2017,” Ataman Ozyildirim, director of business cycles and growth research at The Conference Board, said in a statement. “Housing permits, unemployment insurance claims and the interest-rate spread were the main components lifting the index in September.”

The latest report on the housing market confirmed what the Fed and Conference Board found.

The National Association of Realtors said existing-home sales bounced back strongly in September, rising 3.2 percent to a seasonally adjusted annual rate of 5.47 million in September from a downwardly revised 5.30 million in August.

"The home search over the past several months for a lot of prospective buyers, and especially for first-time buyers, took longer than usual because of the competition for the minimal amount of homes for sale," NAR chief economist Lawrence Yun said in a statement.

"Most families and move-up buyers look to close before the new school year starts. Their diminishing presence from the market toward the end of summer created more opportunities for aspiring first-time homeowners to buy last month."

The trade group said first-time buyers represented 34 percent of home resales in September, up from 31 percent in August and 29 percent a year earlier. First-time buyers represented 30 percent of sales in all of last year.

Yun was optimistic that the first-time-buyer trend will continue, which would be another positive sign for the economy as the year winds down.

"There's hope the leap in sales to first-time buyers can stick through the rest of the year and into next spring," he said. "The market fundamentals — primarily consistent job gains and affordable mortgage rates — are there for the steady rise in first-timers needed to finally reverse the decline in the homeownership rate."

The New York Times, in a story related to AT&T’s plan to acquire Time Warner, reported Sunday that chief executives of other companies are also showing confidence in the economy, hiring as investors bet on continued growth despite such things as the divisive U.S. election, Great Britain’s plan to leave the European Union and Russia’s aggressive moves in the Middle East.

“Everyone is expecting a Clinton victory,” Mark Zandi, chief economist at Moody’s Analytics, told the Times. “She represents the status quo. [Chief executives] think nothing is going to change, and they’re comfortable with that.”

Even the interest-rate increase the Federal Reserve is considering is not, in Zandi’s view, an obstacle to dealmaking and growth.

“The Federal Reserve is sending very strong signals that, yes, it is going to normalize interest rates, but very, very slowly,” he said. “That makes deals easier to get done. It’s a very sanguine, propitious environment for deals.”

This week, economy watchers will get the most recent readings from the top surveys of the American consumer’s mood. Today the Conference Board will release its Consumer Confidence Index for October; economists’ median forecast is that the index will cool a bit to 100.5 from 104.1 the previous month, but remain at a figure that shows the public mood is upbeat.

On Friday we will see the University of Michigan’s final Consumer Sentiment Index for October; the forecast is for a slight increase to 88.2 from a mid-month reading of 87.9.

On Wednesday the Commerce Department will report on new-home sales for September. The forecast is for sales of 615,000 at a seasonally adjusted annual rate, slightly better than the August performance of 609,000.

The Fed will be watching the week’s developments for any fresh signs that it should intervene and raise interest rates. Two meetings of the Federal Open Market Committee, the central bank’s rate-setting panel, are scheduled this year — Nov. 1-2, a week before the election, and Dec 13-14.

It is considered unlikely that the Fed will act just before the presidential vote for fear of affecting it and appearing to meddle in politics.

John Williams, president of the Federal Reserve Bank of San Francisco, said Friday that he would support one rate hike this year and a few in 2017. He is not now a member of the rate-setting panel and won’t be until 2018.

“The U.S. economy is well-positioned to raise interest rates,” Williams is quoted as saying in a Bloomberg report. Having “a rate increase this year makes sense, having a few rate increases next year makes sense, in the context of how the economy has been performing and continues to perform.”

Once inflation rises above 2 percent and the Fed believes the economy is at its maximum employment level, key central bank figures, including Janet Yellen, have indicated that they will start to push rates higher.

Movement toward those targets has been slow, but steady — there’s that phrase again — but momentum has been building within the Fed for at least a modest rate hike by December.

More than a month of fresh data, including two more monthly job reports, remain before the Fed’s December meeting. As in politics and sports, much can happen in the economy in that amount of time.


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