The US economy has been growing steadily, despite a recent decline in the leading economic index. In October, the index fell 0.8% for the 19th month in a row, but economists had forecast a drop of only 0.7%. Despite this, there are no signs that the economy is heading towards a recession.
One factor that has kept the economy growing is the steady increase in consumer spending at a time of low unemployment. This has offset the negative effects of high inflation and rising interest rates. In fact, the US grew at an impressive 4.9% annual pace in the third quarter, which is not a sign of an impending breakdown in the economy.
However, maintaining momentum will be difficult with interest rates at their highest level in years. The Federal Reserve raised a key short-term interest rate to combat inflation, but this will inevitably slow down borrowing and negatively impact economic growth.
Looking ahead, economists predict that elevated inflation and high interest rates will lead to contracting consumer spending due to depleting pandemic savings and mandatory student loan repayments. This could tip the US economy into a very short recession according to Justyna Zabinska-La Monica, senior manager of business cycle indicators at The Conference Board.
Despite these challenges, stock markets remain optimistic as evidenced by Monday’s rise in both Dow Jones Industrial Average DJIA and S&P 500 SPX on trading day.