Recent U.S. economic data have been sending a lot of conflicting signals, and Wall Street’s economic outlook is more clouded than at any point of the cycle. Because of this, we thought we’d provide some direction from Main Street via the latest Federal Reserve’s (Fed) Beige Book survey, which was published January 16 and compiled in the weeks before January 7.

As shown in the LPL Chart of the Day, Main Street is finding it more difficult to characterize current economic conditions and set expectations. While sentiment is still healthy, mentions of uncertainty in the Beige Book climbed to the highest in at least four years, while strong and weak words both declined.

Respondents cited uncertainty around trade, politics, financial markets, and global economic conditions. Recently, this uncertainty has bled into economic data. Gauges of manufacturing activity, which are leading indicators for the U.S. economy, have slowed sharply as businesses delay expansion plans and capital investment while they wait for resolutions to the headwinds. To us, though, all the fundamental pieces are still in place for a continued expansion.

“The growing uncertainty has been tough to ignore, but Main Street’s view of the economy remains relatively upbeat,” said LPL Research Chief Investment Strategist John Lynch. “We still see a compelling argument for moderate economic growth due to strong consumer demand, modestly accelerating wages, and a robust labor market.”

As mentioned in our Outlook 2019: FUNDAMENTAL: How to Focus on What Really Matters in the Markets, we expect U.S. gross domestic product growth of 2.5%–2.75% in 2019. Capital spending growth is an important part of our economic outlook (as it leads to increased productivity and contained labor costs), and we still expect business investment to increase this year. We see trade tensions as the primary roadblock to sentiment, and we expect the United States and China to reach a deal soon, eliminating a great deal of current uncertainty and allowing companies to resume their expansion plans.

For more analysis on the most recent Beige Book, check out this week’s Weekly Economic Commentary.


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