Recent economic indicators from the United States suggest a notable re-acceleration in economic growth. The Atlanta Federal Reserve's GDPNow forecast, alongside the Citi Economic Surprise Index, points towards a robust expansion. This resurgence in economic activity is expected to translate into increased wages and extended working hours, even as job creation forecasts remain modest and unemployment levels hold steady. This scenario, characterized by stronger growth, is anticipated to lead to a 'bear steepener' in the yield curve and a more dominant dollar, mirroring historical patterns linked to the Citi index. Should a government shutdown interfere with the release of official jobs data, financial markets are likely to preemptively adjust, factoring in higher interest rates and a stronger dollar, based on the prevailing positive economic signals.
The US economy is currently demonstrating signs of renewed vitality, a development that stands in contrast to earlier concerns about a potential slowdown. Key metrics are aligning to paint a picture of an economy regaining momentum. The Atlanta Fed's GDPNow, a real-time estimate of GDP growth, has shown an upward trajectory, indicating a faster pace of economic expansion than previously anticipated. Concurrently, the Citi Economic Surprise Index, which measures how economic data releases compare to consensus forecasts, has been consistently positive, suggesting that economic performance is frequently exceeding expectations. These combined signals provide a strong foundation for the outlook of accelerated growth.
A critical component of this economic re-acceleration is the labor market. While current forecasts for job creation might appear conservative, the underlying strength in economic activity is expected to drive up both wages and the average number of hours worked. This implies a healthier labor market, even if the headline job numbers don't show explosive growth. The stability of the unemployment rate further reinforces the idea of a balanced and improving employment landscape. Such conditions are favorable for consumer spending and overall economic confidence, contributing to the broader growth narrative.
The implications of this re-accelerated growth for financial markets are significant. A stronger economic outlook typically leads to expectations of higher inflation and, consequently, higher interest rates. This environment often results in a 'bear steepener' of the yield curve, where long-term bond yields rise more sharply than short-term yields, reflecting increased inflationary expectations and tighter monetary policy. Furthermore, a robust US economy, coupled with rising interest rates, tends to bolster the value of the US dollar. The historical correlation between the Citi Economic Surprise Index and the dollar's strength supports this projection, suggesting that as economic surprises continue to be positive, the dollar will likely appreciate against other major currencies.
In the hypothetical event of a government shutdown, which could delay the release of official jobs data, market participants are unlikely to remain idle. Given the clear signals from other leading economic indicators, such as the Atlanta Fed's GDPNow and the Citi Economic Surprise Index, markets would probably price in the anticipated effects of strong economic growth. This means that even without official labor statistics, traders and investors would factor in higher interest rates and a stronger dollar, driven by the pervasive evidence of economic re-acceleration. Such a scenario underscores the market's efficiency in incorporating available information and its forward-looking nature.
In sum, the current economic climate in the United States indicates a significant pickup in growth. This resurgence, evidenced by key economic indicators, is set to influence various market dynamics. Expect to see an increase in wage growth and working hours, even with conservative job creation figures, while the unemployment rate remains stable. The financial markets are poised to react with a 'bear steepener' in the yield curve and a stronger dollar, a trend supported by historical data. Even if unforeseen events like a government shutdown disrupt official data releases, the underlying economic strength will likely prompt markets to adjust to higher rates and a more robust dollar, demonstrating their capacity to anticipate and integrate comprehensive economic signals.