STLA - Fed's Sept. 19-20 meeting: Downside risks to the economic outlook to watch

2023-09-15 13:27:02 ET

With the Federal Reserve’s data pointing out a "slowing down" of the economy, yet not a full-on recession, the labor markets are starting to embrace this position, staying put for an extended pause on rate changes, according to economists.

Employment growth in the U.S. has slowed down, including the number of job openings. According to the U.S. Bureau of Labor Statistics, the labor force is expected to only grow by 0.4% in the next decade, 2 percentage points lower than the previous.

Capital expenditure has also slowed down. CapEx growth is expected to only grow 7% this year and 2% in 2024, compared to 21% in 2022, according to Citi Global Insights.

The Fed’s third quarter GDP reports show the Atlanta Fed nowcasting 4.9% in GDP; the New York Fed, 2.25%; and the St. Louis Fed, down 0.25%, indicating a recession outlook already in Q3.

Several downside risks to the economic outlook are to be focused on for the Fed’s Sept. 19-20 meeting, according to Torsten Slok, chief economist of Apollo Global Management:

• Households are running out of excess savings.
• Student loan payments are restarting with an average increased payments of $140.
• Delinquency rates could rise for credit cards and auto loans.
• Default rates could also rise for high-yield loans.
• The banking sector ( DJUSBK )'s loan growth slowing rapidly.
• Rise in oil prices.
• The economies of China, Japan, Europe slowing.
• Higher interest payments for the U.S. government
• The United Auto Workers strike — which started Friday after negotiations with Ford ( F ), GM ( GM ) and Stellantis ( STLA ) did not reach the UAW’s goals — could have "a number of ripple effects across the supply chain and the broader economy in a number of different dimensions" if it is long-lasting, said Slok.

"Interest rates are biting harder and harder on consumers," he said. "They’re biting harder on corporations, and that’s what the [Fed] textbook would have predicted."

Mona Mahajan, senior investment strategist on the Investment Strategy team at Edward Jones, said in a CNBC interview on Friday that "markets are expecting a slowdown in the economy," although not recessionary, for the last quarter of the year and the first quarter of next year.

"But then we can emerge in 2024 with a Fed that might be on pause, thinking about rate cuts, inflation that might be moderating, and maybe growth in earnings that could be rebounding," she said.

More on global GDP growth:

• UK's monthly GDP drops 0.5% in July, industrial production down 0.7%
• U.S. Economy: receding recession expectations
• The Fed Decision Preview: A Premature Pause is Likely to be Punished

For further details see: