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With less than two weeks until the next anticipated interest rate change, the scrutiny of the state of the economy intensifies.
There is a bevy of economic data on the horizon, all due for release prior to the Nov. 6 meeting of the Federal Reserve Board Open Market Committee. This data will provide a glimpse at October consumer confidence and unemployment; an advance look at third quarter economic output; new and existing home sales; and the all-important measure of consumer spending.
Here is a preview of a few of the major upcoming releases, with what's expected and the significance of each.
Third quarter Gross Domestic Product (GDP), due for release Oct. 31, is forecast to show a contraction, which no doubt will set forth a chorus of claims that we are now officially in recession. Truth be told, a recession is defined as two consecutive quarters of contraction and is only truly evident in hindsight. In many cases, by the time a recession is validated, the worst is over and the economy is en route to recovery.
New and existing home sales are forecast to decline as well, although not precipitously, owing to a robust year that has prevailed despite the turn of economic fortunes. A large part of the credit goes to the low mortgage rates seen throughout the year, something that has kept homes affordable even as property values have increased.
Thanks to the low rates, you can get a 10 percent higher 30-year fixed mortgage and still pay less than you would have a year ago. The attractive level of mortgage rates and the steady appreciation of home values have been particularly important at a time when stock market wealth has been tumbling.
The Employment Report scheduled for release Nov. 2 is like the sound of screeching tires in traffic. You're curious what is going to happen, but you don't want to watch. The October unemployment rate is forecast to go above 5 percent, but how far above 5 percent it ultimately goes is the matter of concern.
The Wednesday release of the Federal Reserve Beige Book, a synopsis of economic conditions from the various regions of the country, was expected to be depressing. In that respect, it didn't disappoint.
Not surprisingly, consumer confidence and consumer spending are both expected to post ominous numbers. But if there is ever a benefit to pessimistic markets, this is it. Whether now or one or two months hence, any positive surprise in consumer spending and/or consumer expectations could overshadow lousy news on other fronts, such as GDP or unemployment.
Of course, the downside risk also exists. Numbers worse than the already pessimistic forecasts snuff out any measure of optimism. As a result, these two indicators are heavily emphasized when gauging economic health and direction.
While the prognosis is negative in the short-term, the Federal Reserve Board, as well as economists and market participants, will be evaluating each release relative to expectations. Any measure of surprise, either positive or negative, carries more importance at this stage than the general direction.
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