Despite the leading economic index declining 0.8% in October and falling for the 19th month in a row, the U.S. economy appears to be growing steadily. This growth is being driven by a steady increase in consumer spending at a time of extremely low unemployment. However, high inflation and rising interest rates are having negative effects on the economy.
In fact, the U.S. grew at a sharp 4.9% annual pace in the third quarter, which is not a sign of an impending breakdown in the economy. However, maintaining this momentum with interest rates at their highest level in years will be challenging as borrowing costs always slow down the economy if not trigger an outright recession.
Looking ahead, economists expect elevated inflation, high interest rates, and contracting consumer spending to tip the U.S. economy into a very short recession due to depleting pandemic saving and mandatory student loan repayments according to Justyna Zabinska-La Monica, senior manager of business cycle indicators at The Conference Board .
Despite these challenges, market reaction was positive as both Dow Jones Industrial Average DJIA and S&P 500 SPX rose in Monday trading indicating that investors remain optimistic about the future of the U.S economy