For several months, the din of political advertisements and media coverage has been unavoidable. For all the issues at stake in the midterms, however, the economy is not a source of tension. Markets have done a great job of shrugging off political news and continuing to perform.
We view this week’s election news as another event with limited economic ramifications. Outside of significant legislative actions like tax code changes, the actions of political leaders have little day-to-day bearing on economic activity, and that is to be celebrated. The economy remains fundamentally strong.
Recent volatility has calmed, the yield curve continues to slope upward and the Fed remains on course for continued rate increases. We expect economic growth to taper in the quarters ahead as the economy cyclically ends its outperformance and returns to its long-term potential growth rate of around 2%.
Key Economic Indicators
Influences on the Forecast
- The initial estimate of inflation-adjusted gross domestic product (GDP) growth for the third quarter was 3.5%, a strong reading that follows an exceptional 4.2% growth rate in the second quarter. The most recent reading was weighed down by sluggish business investment, which grew at an annualized rate of only 0.8%.
- Consumer spending was the upside surprise of third quarter GDP results, growing at an annualized rate of 4%. With employment remaining strong as we enter the holiday shopping season, consumer activity is poised to continue to bolster economic growth in the fourth quarter.