Past Peak Season

The Northern Trust Economics team shares its outlook for U.S. economic growth, inflation, unemployment and interest rates.

Labor Day weekend marked the functional end of a long, hot summer; the season ahead might be a little cooler for U.S. consumers and businesses. The U.S. administration stepped up tariffs on over $100 billion of Chinese imports of various consumer goods. Beijing retaliated with its own increased tariffs on several American products, including cars. Though the economy continues to show resilience, a few cracks are appearing in the façade. Manufacturing activity and consumer sentiment have both declined from multi-year highs.

Although formal talks between China and the United States are set to resume next month, we are not hopeful for a breakthrough. The continuing uncertainty has led us to reduce our growth projections for the U.S. economy. Recession is not imminent, but risks will rise if the trade war continues to escalate.

Key Economic Indicators

US Economic Outlook - September 2019 Chart

Influences on the Forecast

  • American consumers continue to remain a solid pillar of the U.S. economy. Sturdy labor market conditions continue to support gains in personal spending. But the drop in the University of Michigan Consumer Sentiment Index to a nearly three-year low shows consumers are becoming somewhat more concerned about the economy’s prospects.
  • The manufacturing sector continues to struggle with tightening trade policy. The Institute for Supply Management Purchasing Managers’ Index fell further to 49.1 in August (indicating contraction), the lowest reading in more than three years. New export orders also slowed for the second consecutive month to their lowest reading since April 2009. Readings on the service sector remain encouraging.
  • Despite the further increase in tariffs, the U.S. and China have agreed (yet again) to go back to the negotiating table, cheering investors hoping for a possible truce. As recent history suggests, the optimism is likely to be short-lived, as the talks are unlikely to achieve any substantial headway. We expect trade tensions to remain elevated through the forecast horizon.
  • Uncertainty is likely to keep the demand for U.S. Treasuries high and yields suppressed. We have consequently reduced our expectations for long-term yields.