Expansion Has Slowed in Recent Months, But New York Economy is Braving Headwinds
If equity markets offer any indication, investor optimism in the outlook for business profits increased measurably during October. The Dow Jones jumped more than 1,000 points during the month, rising by 9.5 percent. The S.&P. 500, a broader market measure, spiked 10.8 percent, its best one-month result since 1991. REIT stocks performed even better.
And yet in spite of strong revenue and earnings growth, the rally has been punctuated by periods of extreme volatility, with investor sentiment reacting wildly to day-to-day developments in Europe and mercurial interpretations of domestic growth data.
A number of metrics point to relatively stronger economic activity. Among them, the preliminary estimate of third-quarter gross domestic product shows the economy expanding at an annualized rate of 2.5 percent, nearly double the second quarter’s pace and well ahead of the first quarter’s 0.4 percent growth rate. The Chicago Fed’s National Activity Index, which offers a more contemporaneous measure of the economy’s health, improved from –0.59 in August (incontext, a level precariously close to the index’s recession cutoff) to –0.22.
Reservations about improving growth statistics are warranted, given the fragility of business and consumer sentiment and the potential for the economy to slide back intro contraction given a sufficiently large shock. Headwinds are most apparent across the Atlantic, where the European Central Bank lowered its benchmark interest rate by 25 basis points on Nov. 3. The bank’s president was quoted as saying, “What we’re observing now is slow growth heading toward a mild recession.” Eurostat reported on Monday that retail sales in the Eurozone fell by 0.7 percent from September to August and are down 1.5 percent from a year earlier. Even if a European recession is well contained, it means a slowdown in U.S. export growth and more competitively priced goods flowing from the Continent.