The third quarter of the economic calendar has endured a turbulent time with China’s financial market to blame, for the most part, despite the second quarter which was quite stable. A growing dollar rate has also negatively influenced manufacturers. Considering this turbulence in the economy, there are five things of interest we should expect, as the fourth quarter sets in.
The first thing to watch out for in the fourth quarter is the fortunes of the American manufacturing industry. As the dollar gained strength against other currencies, demand for American-made products has fallen significantly, thereby slicing sales, as well as profits considerably. Big American companies were, therefore, forced to focus on cost cutting and cramping the broader U.S economy. Companies such as Procter & Gamble, Microsoft Corp., and Pfizer Inc., were all hit hard because they have expanded aggressively in overseas markets when searching for growth. However, sales in the overseas markets have not kept up with dollar-based costs. However, the report on durable goods by the Department of Commerce will make it clear whether demand for long-lasting goods is bouncing back. However, with orders for durable U.S manufactured products dropping by 2% in August, coupled with the volatility in the manufacturing and transport industries, it remains to be seen whether American manufacturers can breathe a sigh of relief.
The second thing to watch out for will be the clues, given by the Federal Reserve. In the light of this, the Federal Reserve is expected to release its policy statement on Wednesday but observers are of the opinion that it is highly unlikely that the central bank will raise the benchmark interest rates during the Wednesday meeting. Despite this fact, observers will be working hard, looking for clues on whether the Fed wil act to raise interest rates in December or will wait for next year’s first post-recession rate increase to set in. What the Federal Reserve will do the coming December or next year cannot be said in certain terms but observers agree that the policy statement should be made by Fed chairwoman, Janet L. Yellen will have long-lasting effects, and there are high chances are that the policy is expected to change before the end of the year. One of the clues to look out for is the expected time of release of the Fed policy statement, as the next two scheduled news conferences by Mrs. Yellen will take place in December and March. This, therefore, definitely means that an announcement regarding the benchmark interest rate policy will be made. The second clue observers are looking out for is the two-day meeting before each news conference to be held by Fed Reserve and the Federal Open Markets Committee.
Gauging the economy’s growth is the third thing observers will be watching out for. In the second quarter, the economy grew at a rate of 3.9%. This was a solid performance that economists do not anticipate a repeat of in the summer months. The Department of Commerce is expected to release its preliminary GDP report for the third quarter on Thursday. This report will help economists to look at the extent to which consumer spending can offset future expected declines in inventory growth, and economic sectors expose to China, as well as other weak economies. The economy’s performance in the second quarter was caused by an upturn in exports, upturn in local government spending, acceleration in and a deceleration in imports. To economists, this performance may indicate that the third quarter was equally successful.
A significant increase in GDP will mean that consumer spending will more than offset the economic turbulence and effects caused by China’s financial markets and the continued growth in strenggth of the dollar against other weak currencies. Using the expected GDP report, economists may, therefore, make an estimate of the third quarter’s and gauge the expected of economic growth for the fourth quarter. Relying on previous data, economists forecast that the 3.9% growth rate experienced in the second quarter will not be repeated. As such, the third quarter will experience an economic growth rate of 1.4%. This will be a decline of about 2.5%.
The Fed Reserve is expected to meet in December and in March and two days after Wednesday’s meeting, the Department of Commerce will issue an inflation gauge, preferred by central bankers. This is the price index for personal-consumption expenditures. This meeting is important to policy makers, as they will be looking for signs that the Fed Reserve will introduce firmer inflation, as it moves to raise interest rates. There is, however, the possibility that Fed will not act this Wednesday and if this turns out to be the case, policymakers and economists are of the opinion that inflation readings will weigh heavily in the Fed’s agenda in December.
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The possible increment in interest rates by the Federal Reserve between the three meetings will mean that inflation rates are expected to go high. According to Catherine Mann, the chief economist at the OECD, the Fed should raise interest rates due to the “frothiness” of the asset market. However, other economists share different sentiments, as they believe that the Federal Reserve should not announce the new inflation gauge. This opinion is supported by their argument that going slow on raising interest rates is the right step because a quarter-point rise is unlikely to change the problems the economy is currently facing. Despite these differing points of view regarding hikes in interest rates, these economists and policy makers agree that inflation will most likely rise in the coming months.