Monthly Economic Outlook by Scott J. Brown, Ph.D.

Out of the Soft Patch, But What Lies Ahead?

April 24, 2019


Real GDP rose at a 2.2% annual rate in the third estimate for 4Q18 (it’s called the “third” even though it was the second official estimate), up 3.0% year-over-year. The advance estimate for 1Q19 will be released on April 26. There’s always a lot of uncertainty in the advance estimate. We’re missing data on a number of components. However, expectations have improved over the last several weeks.

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Risks Recede, But Not Completely

March 11, 2019


The partial government shutdown led to the delay of economic data releases from the Bureau of Census (retail sales, residential construction, inventories, trade balance) and the Bureau of Economic Analysis (GDP, personal income and spending). Reports from the Bureau of Labor Statistics (nonfarm payrolls, Consumer Price Index) were not affected, nor were those of the private sector (ISM, Conference Board) and the Federal Reserve (industrial production).

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Risky Business

February 7, 2019


The partial government shutdown has resulted in an incomplete economic picture of the fourth quarter. Reports from the Bureau of Census (retail sales, residential construction, inventories, trade balance) and the Bureau of Economic Analysis (GDP, personal income and spending) have been delayed. Reports from the Bureau of Labor Statistics (nonfarm payrolls, Consumer Price Index) were not affected, as were those of the privatesector (ISM, Conference Board) and the Federal Reserve (industrial production).

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Economic Outlook 2019

December 21, 2018


Recent economic data releases have remained consistent with moderately strong growth and contained inflation. However, financial market participants have generally ignored all that, looking ahead with some trepidation to 2019.

There are a number of potential difficulties in 2019: trade policy, slowing global growth, Brexit, Italy, the Mueller investigation, and just possibly, a bad attitude. Having raised short-term interest rates four times in 2018, the Federal Reserve remains in tightening mode. Future action will remain data-dependent, but the pace of tightening should slow.

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Transitioning into 2019

November 19, 2018


  • Recent data have remained consistent with moderately strong economic growth into 4Q18. There is more fiscal stimulus in the pipeline for early 2019, but growth should slow to a more sustainable pace as the impact of stimulus fades and labor market constraints become more binding. Risks for the second half of 2019 may be tilted slightly to the downside.
  • Trade tariffs and foreign retaliation are having a broader impact on U.S. businesses but a limited effect on overall economic growth and inflation. Unless an agreement is reached, U.S.-China trade tensions are set to become more disruptive in early 2019.
  • The Federal Open Market Committee is expected to raise short-term interest rates in mid-December. The monetary policy outlook for 2019 is uncertain, but the pace of tightening is likely to slow.
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Trade Policy and the Economic Outlook

July 17, 2018


  • Economic growth appears to have been relatively strong in the second quarter, with a robust pace of job growth. Comprehensive benchmark revisions to the GDP data are due (along with the advance estimate for 2Q18) on July 27.
  • The Federal Reserve raised short-term interest rates further after the June 12-13 policy meeting, and the revised dot plot showed that officials were divided on whether there would be one or two more rate increases by the end of this year. Most policymakers expected that conditions will warrant an above-neutral federal funds target in 2019 or 2020.
  • To date, increased tariffs and retaliatory responses from China, Canada, Mexico, and the European Union have had only a very minor impact on U.S. growth. However, the escalation of trade tensions in early July, along with a lack of clearly stated goals, raises the risks of a more substantial impact in the months ahead.
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As Good As It Gets?

May 9, 2018


  • Economic growth moderated in the first quarter, driven largely by a lackluster pace in consumer spending, but growth is expected to pick up in 2Q18. Beyond that, labor market constraints are likely to become more binding.
  • Inflation has moved closer to the Federal Reserve’s 2% goal, but that’s mostly a quirk. Pipeline pressures have picked up, but consumer price inflation is unlikely to rise sharply.
  • Federal Reserve policymakers are expected to continue raising short-term interest rates gradually until the economy shows more definitive signs of achieving a long-term sustainable pace or if we experience a major external shock.
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The 2018 Economic Outlook

Stumbling and Mumbling

March 2, 2018


  • Most of the major economic reports for January were on the weak side of expectations, but that followed a strong 4Q18 and the data can be unreliable at the start of the year.
  • Business optimism, accommodative fiscal policy, and a strong global economy should help to fuel U.S. growth, but job market constraints and tighter monetary policy are expected to be binding beyond the next few quarters. A misstep on trade policy remains an important downside risk.
  • Over the last couple of years, Federal Reserve policy was about taking the foot off the gas. Going forward, it’s about tapping the brakes. The pace will depend on the economic data (specifically, what the data imply for the economic outlook). Real GDP rose at a 2.5% annual rate in the 2nd estimate
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An Increasingly Uncertain Outlook

January 30, 2018


  • While the economy appears to have good momentum in the near term, it is increasingly unclear how tax cuts, a tighter job market, and a more hawkish Fed will balance out.
  • The tight labor market should force a slowing in job growth, unless we get a sharper decline in the unemployment rate, which would put Fed policymakers behind the curve.
  • The Fed is expected to be more hawkish in 2018. Long-term interest rates should drift a bit higher, and the slope of the yield curve should remain consistent with moderate growth.
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The 2018 Economic Outlook

December 22, 2017


  • The economy appears to be closing out 2017 in good shape. The tax cut bill is likely to add a little to growth in the near term, but is not expected to add much over 10 years.
  • Corporate tax cuts will boost after-tax earnings, helping to support share prices, but how much is already factored in? The tax bill will also add to the federal budget deficit.
  • With short-term interest rates close to neutral, personnel changes will add to monetary policy uncertainty in 2018, but the market focus will likely be on the roll back in regulations.
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Zip! Bam! Powell!

November 30, 2017


  • Recent economic data reports have remained consistent with a moderate pace of growth in the near term.
  • As with much of the rest of the world, U.S. economic growth is still expected to be restrained by a tightening labor market, but faster productivity growth ought to provide a lift
  • The monetary policy outlook is expected to be little changed through the leadership transition at the Fed (still gradual, still data-dependent), but the focus will turn away from monetary policy and toward regulator policy.
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Bumpy data, moderate trends

October 31, 2017


  • The hurricanes had positive and negative impacts on 3Q17 GDP growth, but the effects should unwind. The job market is expected to be a greater restraint on growth into 2018.
  • President Trump is expected to nominate current Fed governor Jerome Powell to replace Janet Yellen as Fed chair. That would be a comfortable choice for the financial markets.
  • The Russian investigation is an important risk for the markets, which haven’t focused much on developments. The Congressional road to tax cuts is expected to be difficult, but there is much haste to complete a package by yearend.
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Riding the storm out

September 25, 2017


  • The loss of life and property damage are tragic. The economic data for the next several weeks will be distorted. However, hurricanes Harvey and Irma are expected to have only a temporary impact on the overall economy.
  • Prior to the hurricanes, the economic data were mixed, suggesting a lackluster-to-moderate pace of growth.
  • Federal Reserve policymakers announced that balance sheet normalization will start in October, with the run-off set initially at a modest pace ($10 billion per month), rising every three months to its full stride ($50 billion per month) in October 2018. Fed officials continue to anticipate gradual increases in short-term interest rates over the next few years, with most (11 of 16 officials) expecting a December move.
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Still in the sweet spot?

August 10, 2017


  • Recent economic data have remained consistent with moderate economic growth in the near term.
  • Federal Reserve policymakers continue to expect that economic conditions will warrant a gradual pace of increases in short-term interest rates. The Fed expects to begin unwinding its balance sheet “relatively soon” (most likely October).
  • Fiscal stimulus, through increased infrastructure spending program or major tax reform, looks doubtful, but lawmakers may still lower tax rates in the months ahead.
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Gonna be a long summer

June 9, 2017


  • Recent economic data suggest that, while second quarter GDP growth will be stronger than in the first quarter, the rebound is likely to be less than was hoped for earlier.
  • The underlying trend in nonfarm payrolls has continued to slow as the job market has tightened – a key focus of Federal Reserve policy and a limiting factor for economic growth.
  • The Fed is expected to raise short-term interest rates at the June 13-14 policy meeting, but the outlook for the next several quarters is more uncertain. Changes to the reinvestment policy may generate some confusion for the financial markets.
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Renewed hope, but will it be more of the same?

May 8, 2017


  • Recent economic data have been consistent with moderate growth over the near term (following a soft 1Q17).
  • The Federal Reserve, focused on the job market and the inflation outlook, is gradually normalizing monetary policy and will likely end the reinvestment policy later this year.
  • The widely anticipated Trump tax “plan” was a one-page, detail-free repeat of what was proposed six months earlier – and will likely face an uphill battle in Congress. Nevertheless, stock market participants remain enthusiastic.
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Reassessing the trump trade

March 30, 2017


  • Recent economic data have been mixed, consistent with moderate growth over the near term.
  • The failure of the House to pass legislation to repeal and replace the Affordable Care Act has cast some doubt about the ability to achieve the rest of the “Trump agenda.” However, while comprehensive tax reform appears to be unlikely, there’s a good chance that Congress will be able to lower tax rates.
  • The Fed followed up its December move with another rate increase in March. While tightening is more aggressive than in the last two years, there’s considerable uncertainty ahead.
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Cautious optimism

February 10, 2017


  • Economic data have been subject to seasonal distortions, but recent figures have remained consistent with positive momentum in consumer spending and business investment.
  • Optimism about the economy has increased since the November election, but a tight labor market and difficulties in getting President Trump’s agenda through Congress are likely to be constraints. Global trade disruptions are the greatest risk.
  • Monetary policy remains data-dependent, but the Federal Reserve is expected to raise short-term interest rates gradually.
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The 2017 economic outlook

December 19, 2016


  • The U.S. economy is closing out 2016 on a firm footing. The household sector is in good shape. Post-election optimism may contribute to a pickup in business fixed investment. The global outlook is a bit brighter, although challenges remain.
  • Republicans control the White House and Congress, which should make it easier to get things done. However, there are likely to be some conflicts between the incoming administration and establishment Republicans in Congress. Power transitions are typically bumpy, with many unforeseen events.
  • Monetary policy will remain data-dependent, but the Federal Reserve is still expected to raise short-term interest rates gradually. Expectations of a larger federal budget deficit have lifted long-term interest rates, but low rates abroad should prevent U.S. bond yields from rising too rapidly.
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The post-election outlook

November 21, 2016


  • The unexpected result of the presidential election has generated optimism that reduced regulations, added infrastructure spending, and lower taxes will spur growth.
  • However, the economy appears to be relatively close to full employment. If so, fiscal stimulus would be more likely to add to inflation or fuel asset bubbles. Expectations of increased government borrowing have lifted long-term interest rates.
  • It’s unclear what policies we’ll get out of Washington in 2017. A trade war remains a significant risk.
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The new normal

October 12, 2016


  • The near-term economic outlook is “more of the same” – mixed but moderate growth, with moderate inflation.
  • While the presidential race appears to be less uncertain, attention has turned to down ballot contests, which could alter the composition of the House and Senate.
  • The underlying trend of economic growth in the U.S. and around the world is slowing, creating a number of challenges for policymakers and investors.
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In a Fed spin

September 8, 2016


  • Economic data have been mixed, but generally consistent with moderate economic growth in the near term.
  • Federal Reserve officials, including Chair Yellen, have signaled a possible September 21 rate hike. However, while short-term hawkish, officials also appear long-term dovish.
  • Financial market participants doubt the central bank’s resolve. However, a 25-basis-point increase in the federal funds target rate should not have a major impact
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Brexit Wounds

July 14, 2016


  • Brexit will be bad for the U.K. economy, but should have a very limited impact on U.S. growth.
  • Recent data reports have been consistent with mixed, but moderate growth in the U.S. Payroll numbers have been choppy, reflecting noise in the data, but the trend has slowed, signaling both business caution and a tighter job market.
  • The Fed remains in tightening mode, expecting to resume policy normalization at some point. However, officials should not be in any hurry to raise rates
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Jobs and growth: Diminished expectations

June 6, 2016


  • Nonfarm payrolls rose more slowly in the three months ending in May, which may reflect noisy data. However, job gains will slow as the labor market tightens, and future labor force growth will be a lot slower than in previous decades.
  • U.S. economic growth is likely to be moderately strong in the near term, led by consumer spending, but restrained by continued subpar global growth and cautious business investment.
  • The Fed’s policy outlook is geared on tighter labor market conditions and a desire to normalize policy over time. However, asymmetric risks, global concerns, and business caution should keep short-term interest rates on a gradual path.
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Back in the Sweet Spot?

April 21, 2016


  • Recent economic data reports have been generally soft, suggesting relatively weak GDP growth in the first quarter. However, the data are also consistent with moderate growth in the near term – not strong, but not terribly weak either.
  • Following signs of a pickup in core inflation in January and February, March inflation figures were more benign. Combined with the moderate growth outlook, the Fed’s gradual path of policy normalization should be even more gradual.
  • Much of the fear that was rampant at the start of the year (China, Fed tightening, a too-strong dollar, a possibility of “recession”) has subsided. As in the last few years, the economic expansion is expected to continue, but not so fast that the Fed rushes to take away the punch bowl.
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Cognitive Dissonance

March 7, 2016


  • The consumer outlook remains positive, driven by job gains, wage growth, and a further decline in gasoline prices. Consumers are concerned about the overall economy, but generally feel better about their own financial situation.
  • Businesses remain mostly cautious amid concerns about global growth, fear of “recession,” and election-year uncertainty. Foreign trade and an inventory correction are likely to be moderate drags on GDP growth in the near term.
  • The Fed remains in tightening mode, but recent financial market developments should keep monetary policy on hold in the near term. A June hike is likely to be on the table, but the decision to move will remain data-dependent.
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Front-Loading Anxiety and Risk in 2016

January 13, 2016


  • China’s stock market troubles have fanned concerns about the strength of the country’s economy and the ability of Chinese authorities to stabilize the situation. However, the bigger concern is the yuan, which is under considerable pressure
  • The U.S. economic data have been mixed, with signs of somewhat slower GDP growth, but continued strength in jobs.
  • The Fed is still expected to raise short-term interest rates further, but global disruptions are likely to lead officials to delay the second rate hike beyond March.
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The 2016 economic outlook (Briefly)

December 17, 2015


  • The theme of domestic strength and global weakness is expected to remain prevalent into the first half of the year. Job growth is expected to remain strong, but likely slower than in the last two years. The benefit to consumer spending from lower gasoline prices should fade as energy prices stabilize.
  • The global outlook will be important. The advanced economies are expected to grow moderately, while emerging economies should be mixed. The Chinese currency is likely to depreciate a lot more, but gradually over the course of 2016.
  • The Fed is expected to raise rates gradually (25 basis points at every other policy meeting), but policy action will be data- dependent and the risks are that it will be less aggressive.
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Fed Set to Begin Normalization

November 19, 2015


  • U.S. economic activity has appeared mixed, but generally moderate into 4Q15, with a strong (but somewhat slower) trend in job growth and low inflation.
  • Downside risks (to the U.S. economy) from the rest of the world appear less worrisome than a couple of months ago.
  • Federal Reserve officials have signaled a strong likelihood that short-term interest rates will be raised in December. More importantly, while further policy tightening will be datadependent, the pace of rate increases is expected to be gradual.
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October 7, 2015


  • The slowdown in global growth and the stronger dollar have restrained U.S. exports. A wider trade deficit and an inventory correction are expected to subtract from GDP growth.
  • In contrast, consumer spending growth appears to have remained brisk, factory shipments of capital goods have improved, and the housing sector continues to recover.
  • Since postponing the initial increase in short-term rates in mid-September, most Fed officials (including Chair Yellen) have indicated that a rate hike is likely to be warranted by the end of the year. The markets believe the Fed will wait until 2016.
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Fed Delays / Government Shutdown Looms

September 22, 2015


  • Global financial and economic developments are expected to have a mixed, but uncertain, impact on the U.S. economy. The Federal Reserve is still set to raise short-term interest rate. Officials appear to be mixed, but are generally cautious.
  • Slower global growth and an inventory correction may restrain GDP growth, but domestic demand should benefit from lower commodity prices and is expected to remain strong.
  • Showdowns over the FY16 budget and the debt ceiling may lead to a government shutdown. While a shutdown would likely have a limited impact on the economy, it could add to financial market anxieties in the weeks ahead.
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Broken China

August 25, 2015


  • Fears of slower growth in China and other emerging economies have added to investor anxieties around the world.
  • While U.S. exporters will face restraints from slower growth abroad, lower commodity prices should be beneficial for consumers and domestic-oriented businesses.
  • The Fed remains on track to begin raising short-term interest rates, but downward pressure on commodity prices and the lack of a meaningful pickup in wage growth is likely to lead the Fed to delay policy action the near term.
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Second-, Third-, and Fourth-Guessing the Fed

July 23, 2015


  • An agreement between Greece and the European Commission has reduced the odds of a near-term exit from the monetary union. However, the country's situation is unresolved and we are likely to see tensions heat up again at some point.
  • Federal Reserve officials continue to signal that economic conditions are likely to warrant an initial increase in short-term interest rate this year, but they have also emphasized that the more important question is the pace of tightening beyond the first move - and that pace is expected to be gradual.
  • While Greece is mostly off the table as a near-term risk, U.S. investors are likely to remain concerned about a variety of other issues, including the timing of Fed rate hikes and a possible longer-term slowdown in China.
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Fed on track for policy normalization

June 23, 2015


  • Economic data have been consistent with moderate growth in 2Q15, but with mixed strength across sectors.
  • Excess slack in the labor market continues to be reduced, but full employment still appears to be many months away.
  • Monetary policy will remain data-dependent. It’s likely the Fed will begin raising short-term interest rates later this year, but the pace of tightening is likely to be very gradual.
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Yikes! (but mediocre news may be “good” news)

May 13, 2015


  • GDP growth was weak in 1Q15. More importantly, the anticipated 2Q rebound appears likely to disappoint.
  • The economic backdrop may be favorable for equities. The economy continues to recover but not so rapidly that the Fed will rush to take away the punch bowl.
  • However, earnings growth remains an issue for the stock market and a sharp increase in bond yields in Europe has contributed to a similar rise in yields of long-term Treasuries.
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Still optimistic, but some uncertainties

April 24, 2015


  • Growth slowed in the first quarter, reflecting bad weather, West Coast port issues, a contraction in energy exploration, and the impact of a strong dollar, but is widely expected to pick up.
  • Senior Fed officials continue to suggest that conditions are likely to warrant an initial increase in short-term interest rates this year. However, they also believe that the more important question is the pace of tightening after the first hike, and they suggest that that pace is likely to be very gradual.
  • Financial market participants face uncertainty regarding the pace of economic growth here and abroad, as well as Fed policy changes, geopolitical worries, and other issues.
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The fed, U.S. dollar, and markets

March 10, 2015


  • The Federal Open Market Committee is widely expected to alter its language in the March 18 policy statement, abandoning the view that it can "be patient" in deciding when to begin raising short-term interest rates. However, that does not mean that the Fed will raise rates anytime soon.
  • The Fed will have to raise rates eventually. In contrast, other central banks are battling the possibility of deflation. Monetary policy is the major factor in short-term movements in exchange rates. The dollar is likely to strengthen further in the near term.
  • The strong dollar is a plus for consumers, but a negative for exporters. There are two opposing forces at work on bonds: worries about the rest of the world, which are keeping yields down, and increasing domestic economic strength, which would normally be pushing bond yields higher.
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January 22, 2015


  • U.S. economic growth should pick up in 2015, as lower gasoline prices are expected to provide significant support for consumer spending. Importantly, the expansion is now characterized by an improving outlook for small and mediumsized businesses, which should continue to propel economic growth even after gasoline prices stop falling.
  • The outlook for other advanced economies has softened further and emerging economies are likely to be a bit spotty in 2015. The U.S. dollar should continue to strengthen and a flight to quality is expected to keep long-term interest rates low.
  • The Federal Reserve is expected to begin normalizing monetary policy in the second half of the year. However, shifting views on the Fed’s timing outlook, economic developments outside the U.S., and geopolitical tensions are likely to keep financial market volatility at elevated levels.
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