The US economy is experiencing a steady growth despite the leading economic index falling 0.8% in October and declining for the 19th month in a row. Economists had predicted a drop of 0.7% in the leading index, which measures 10 indicators to gauge the economy’s health. However, this decline has not led to an impending recession as there are no signs of one.
What has kept the economy growing is an increase in consumer spending, which has offset negative effects of high inflation and rising interest rates. In fact, the US grew at a sharp annual pace of 4.9% in the third quarter, which is not indicative of an impending breakdown in the economy.
Despite this growth, interest rates are at their highest level in years, making it difficult for the economy to maintain its momentum. The Federal Reserve raised a key short-term interest rate to curb inflation, but this will inevitably slow down the economy or even trigger an outright recession if borrowing costs continue to rise.
Looking ahead, economists predict that elevated inflation, high interest rates, and contracting consumer spending due to depleting pandemic savings and mandatory student loan repayments will lead to a very short recession in the future. Justyna Zabinska-La Monica, senior manager of business cycle indicators at The Conference Board stated that these factors will cause a recession.
The market reacted positively to this news with both Dow Jones Industrial Average DJIA and S&P 500 SPX rising on Monday trading.