Weak manufacturing demand drags down U.S. leading economic indicators, Conference Board lowers growth forecast
The Conference Board reported on Monday that the U.S. leading economic index fell month-over-month in September, with weak manufacturing demand, reduced building permits, and declining consumer confidence offsetting some growth signals. Despite retail sales exceeding expectations and upward revisions to GDP growth estimates, the organization expects only modest economic expansion from late 2024 to early 2025. Federal Reserve officials emphasized that policy will depend on data, and market expectations for the magnitude of a November rate cut have dropped from 50 basis points to 25 basis points.
Key Takeaways
- A U.S. economic outlook index fell last month, the Conference Board said Monday, as weak manufacturing demand, fewer building permits, and a pullback in consumer confidence outweighed signs of accelerating growth.
- "The continued weakness in new orders for factory goods in September remained the main drag on the U.S. Leading Economic Index, as the global manufacturing downturn persists," Justyna Zabinska-La Monica, senior manager of business cycle indicators at the Conference Board, said in a statement.
- She noted that "gains in other leading index components were not enough to offset" the weakness in other indicators of economic vitality. The index'ssignals of economic uncertaintywere consistent with the organization's "expectations for moderate growth from late 2024 into early 2025."
Deeper Dive
Recent signs of strength had boosted market confidence that the labor market and the broader economy would avoid a slowdown. Commerce Department data released Thursday showed retail sales rose 0.4% in September from the prior month, beating expectations, after a 0.1% gain in August, highlighting consumer spending resilience and supporting upward revisions to 2024 growth forecasts.
The Atlanta Fed is confident in continued economic growth, with its GDPNow model estimating that third-quarter gross domestic product could grow at an annualized rate of3.4%. According to the Bureau of Economic Analysis, GDP grew at an annualized rate of 1.4% in the first quarter and3%。
in the second. Additionally, U.S. employers' unexpectedly strong hiring last month has dispelled market expectations that the Federal Reserve would cut interest rates by 50 basis points for a second consecutive time at the conclusion of its November 7 policy meeting. According to theCME FedWatch tool, interest rate futures traders have lowered the probability of a 50-basis-point cut to zero from 50% a month ago, and now see an 87% chance of a 25-basis-point cut, which would lower the target range from its current 4.75% to 5%.
"Client focus has shifted from recession to reacceleration," BofA Securities analysts said in a client note Friday. "We see risks as more balanced now, rather than skewed to the downside, and maintain our soft-landing base case," meaning the economy avoids mass layoffs and a recession.
In recent weeks, central bank officials have emphasized that policy will depend on the latest data on inflation, employment, and GDP, while also pointing to the challenges of forecasting the outlook.
"The economy is strong and stable," Dallas Fed President Lorie Logan said Monday, while noting that "significant uncertainty remains in the outlook."
"Downside risks to the labor market have increased, balanced against upside risks to inflation that, while diminished, remain real," she added, "and many of these risks are difficult to assess and measure."
She said that gradually lowering the federal funds rate would help manage risks and assist the Fed in achieving its goals of maximum employment and 2% inflation. "However, any number of shocks could affect the path to normalization, the pace of policy adjustments, and the ultimate level of rates."