The Fed's Dimmer View Of The Economic Forecast

Federal Reserve Chairman Jerome Powell. (AP Photo/Alex Brandon) ASSOCIATED PRESS

The Federal Reserve announced that interest rate hikes will probably be on hold for the rest of 2019 because they see fewer signs of a strong economy. Some of the weaker trends will probably last a couple of years, while others are likely to rebound quickly. Here’s the bad news list and my observations on how long the bad will last.

Employment had weak growth in February, but this is probably temporary. Most of our data series are erratic, and it’s not unusual to have a bad month in the middle of a long string of good months.

Household net worth fell in the fourth quarter of 2018. Probably temporary given the stock market’s rebound.

Retail sales dropped (but not total consumer spending, which includes services and utilities) the last two months, especially in furniture, electronics and appliances, and sporting goods. Gasoline sales were down because of lower prices. Probably temporary, as employment will grow, along with wage rates, pushing total income up.

Housing starts dropped the last half of 2018, then rebounded this January. Probably permanently lower than a year ago, because of low population growth reducing the need for more residential construction.

Non-residential private construction declined a small amount since October, though public construction more than made up for it. Look for total non-residential construction to have low growth over the next year.

Manufacturing production fell the last two months, totaling nearly one percent. A portion of the decline was in metals and machinery used by petroleum exploration and development. This sector is softening because of the lower crude oil prices. Look for a leveling off after a few more months of decline.

Orders for new business capital goods (excluding aircraft) are down just a little in the last two months, with metals and machinery again taking a hit. This is again petroleum-related, and a reason I think production will be softer for a few more months. Then manufacturers will be at the new equilibrium for current oil prices.

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Gary Anderson 2 months ago Contributor's comment

Consumer weakness does not appear to be temporary. That could be the ultimate problem. Hopefully, not.