The findings from the Federal Reserve reflect an economy that is neither too hot or too cold.
The U.S. economy held steady in early fall as consumers showed more price sensitivity and the labor market came into better balance with a slight increase in hiring amid lower worker turnover.
The benign reading from the Federal Reserve’s “beige book” – a compendium of economic reports from the Fed’s regional banks around the country – released Wednesday largely matches the findings of private sector economists.
“On balance, economic activity was little changed in nearly all districts since early September, though two districts reported modest growth,” the summary said. “Most districts reported declining manufacturing activity. Activity in the banking sector was generally steady to up slightly, and loan demand was mixed, with some districts noting an improvement in the outlook due to the decline in interest rates.”
“Reports on consumer spending were mixed, with some districts noting shifts in the composition of purchases, mostly toward less expensive alternatives,” it said.
And the beige book fits the narrative of a “soft landing” for the economy as interest rates come down, inflation trends back toward the Fed’s 2% annual target and the labor market rebalances after the disruptions of the COVID-19 pandemic. Ironically, the release came on a day when the Dow Jones Industrial Average fell 500 points after Treasury yields rose and some of the largest stocks sold off on doubts the Fed could be as aggressive as the market wants with interest rate cuts.
“Looking ahead, we foresee consumers and businesses still spending but doing so more prudently amid still-elevated costs and rates,” said EY Chief Economist Gregory Daco. “We continue to expect a bifurcated consumer spending outlook with lower-income households with larger debt burdens exercising more spending restraint while families at the higher end of the income spectrum still spending, albeit with more discretion.”
“We foresee real GDP (gross domestic product) growth averaging 2.7% in 2024 and easing to 1.9% in 2025 but note the unusually elevated level of uncertainty dependent on the election outcome,” Daco added.
However, the Fed and private economists’ findings seem to be at odds with the mood of Americans, who repeatedly express displeasure with the state of the economy in polls taken leading up to the presidential election in less than two weeks. Those polls, however, reflect deep partisan biases, with Republicans more sour on the economy and Democrats generally in a better mood.
Both candidates for the White House have offered a wide variety of economic proposals, with former President Donald Trump promising to cut taxes for millions and impose massive tariffs on imported goods. Vice President Kamala Harris has focused heavily on family-friendly policies such as incentives for first-time homebuyers, support for new parents and eldercare. She also favors higher taxes for those with higher incomes.
The combination of proposals from Trump are seen as inflationary by most economists and Wall Street firms, with the Committee for a Responsible Federal Budget warning on Tuesday that his plan to cut taxes on Social Security would be especially harmful to the nation’s primary retirement program.
“Unfortunately, neither candidate has presented plans to fix Social Security’s finances despite the looming $16,500 cut facing a typical couple retiring just before insolvency,” the committee said in its report. “In fact, we find President Trump’s campaign proposals would dramatically worsen Social Security’s finances.”
Specifically, the nonpartisan group warned Trump’s proposal would hasten Social Security’s potential insolvency, bringing it closer by three years to 2031 from 2034 as is forecast. That could change if Congress were to make changes to the program by raising the age at which Americans become fully eligible for benefits or increasing the limit on income subject to the payroll taxes that help fund it. Trump has repeatedly said this year on the campaign trail that he would protect Social Security even as he has also suggested there are cuts that could be made to it.
The committee said that Harris’ proposals would cause little change to the program since it is assumed she would follow the existing plans in place.
The Fed’s survey fits the widespread belief among economists that the U.S. economy is outperforming the rest of the world and running better than was expected at the beginning of the year.
On Tuesday, the International Monetary Fund raised the outlook for economic growth in the U.S. to an annual rate of 2.8% from 2.6% in July, while also increasing the 2025 growth pace to 2.2% from 1.9% previously. The Washington-based organization credited the decline in inflation over the past two years along with increased immigration that has kept the domestic labor market strong.
Separately, the National Association of Realtors said that existing home sales fell 1% in September from a month earlier and are down 3.5% from year-ago levels. The median price continued to increase for the 15th consecutive month, hitting $404,500 – a 3% jump from a year ago.
“Home sales have been essentially stuck at around a four-million-unit pace for the past 12 months, but factors usually associated with higher home sales are developing,” said NAR Chief Economist Lawrence Yun. “There are more inventory choices for consumers, lower mortgage rates than a year ago and continued job additions to the economy. Perhaps, some consumers are hesitating about moving forward with a major expenditure like purchasing a home before the upcoming election.”
Economists had predicted a gain of about a half percentage point from August levels.
“While mortgage rates have increased in recent weeks, rates are generally expected to fall through the end of the year,” said Lisa Sturtevant, Bright MLS chief economist. “At the same time, the number of new listings coming on to the market is expected to continue to increase.”
“At the end of September, NAR reported that total active inventory was up more than 20% compared to a year ago,” she added. “More inventory and lower rates should translate into more home buying and selling activity in the fourth quarter. Overall, therefore, the fourth quarter should be a busy time for the U.S. housing market and total home sales for the year should edge up above the 2023 level.”