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The U.S. economic expansion reached 112 months in October and it is in no immediate danger of ending.

October 2018 U.S. Economic Outlook

October 10, 2018
By Robert A. Dye, Ph.D., Daniel Sanabria

U.S. Households Are in Very Good Shape     

The U.S. economic expansion reached 112 months in October and it is in no immediate danger of ending. We expect this expansion to go into the record books as the longest U.S. economic expansion ever when it reaches 121 months next July. While the near-term outlook is good, we will be in unknown territory if and when this becomes the longest expansion in U.S. history.

The number of economic metrics that are at multidecade bests (highs or lows) is remarkable. Many of these “bests” are labor market metrics. The U.S. unemployment rate, at 3.7 percent in September, is the lowest since December 1969. Likewise, unemployment insurance claims are the lowest since 1969. July job openings were at 6,939,000, the highest level since that series started in December 2000. The National Federation of Independent Business’s Business Optimism Index was at a 45-year high in September.

Other metrics are very good. The ISM Manufacturing and the ISM Non-Manufacturing Indexes combining in September to exceed 120 is a very positive signal.

Payroll job growth in September eased off the near-200,000 jobs per month pace of the first eight months of 2018, to hit 134,000 for the month. This is not a bad number at all given how tight the labor market is. We have gotten used to robust job growth but that is going to change. We simply cannot keep that pace up given that we have only about 6 million unemployed workers according to the U3 labor force count. Wage growth continues to be moderate, up 2.8 percent over the last year.

Hurricane Florence may have been a small negative weight on the September job numbers. The timing of the hurricane suggests that most of the jobs data was collected before the hurricane struck the Carolina coast. Hurricane Michael may prove to be a bigger drag on October economic data than Florence was on September data.

U.S. households are in great shape. Jobs are plentiful. The personal saving rate has rebounded after bottoming out in June 2005 at 2.2 percent, to a fairly steady near-7 percent range. Homeowners are continuing to generate equity in their homes, and for the most part, they are not spending it out. So even if we hit some bumps, households are not overextended on credit and they have much more padding to protect themselves from adverse economic conditions than they did in late 2007.

The Conference Board’s Consumer Confidence Index in September surged to 138.4, within striking distance of its all-time high of 144.7 from January 2000. With the mid-term elections coming up consumer confidence may be vulnerable, especially if a flip in the House or Representatives and/or Senate significantly alters the political landscape. However, history suggests that consumer confidence tends to increase after the mid-term election. In 2014, the Consumer Confidence Index was higher in December after the mid-term election than it was in October before the mid-term election. The same was true in 2010, 2006, 2002, 1998 and 1994. 1990 breaks the pattern, but it holds in 1986 and 1982.

Federal Reserve Chairman Jay Powell has doubled down on “gradualism.” We still believe that gradualism, as defined by a 25 basis point fed funds rate hike every other FOMC meeting, will change in late 2019. But for now, the Fed’s familiar cadence will continue. According to the CME Group, the implied odds of the fourth rate hike for 2018, coming on December 19, are about 81 percent. The odds of the next rate hike after that coming in cadence on March 20, 2019 have increased to about 56 percent.

For a PDF version of this report, please click here: October 2018 U.S. Economic Outlook

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.