Morning Market Brief: September 26, 2023

US economic growth may be heading for a slowdown?

Data released yesterday showed economic activity in the US fell considerably in August. Tight financial conditions were weighing on several parts of the US economy. The US Federal Reserve Board (Fed) had expected the economy to slow as it aggressively raised interest rates. Now, the Fed is seeking to adjust monetary policy to ensure a smooth landing for the US economy.?

• The Chicago Fed National Activity Index fell to -0.16 in August from 0.07 in July. A negative reading denotes a period of slower economic growth. According to a Bloomberg Survey, economists were expecting economic activity to rise to a reading of 0.10.
• Consumption-related indicators detracted from activity over the month. The drop suggests tight financial conditions may now be weighing on consumers, who have been a source of strength for the US economy, particularly coming out of the pandemic.
• The housing category also dropped over the month. Recent data shows struggles in the US real estate market as rising mortgage rates and higher home prices weigh on demand.
• Global economic conditions remain uncertain. While there have been pockets of strength, notably in the labour market, some sectors such as manufacturing have been hindered by slowing demand.

The Fed, Bank of Canada (BoC) and other central banks carefully weigh their interest rate decisions against the potential impact on their respective economies. Canada’s economy, which shrank in the second quarter of 2023, may be negatively impacted further by the drop in US economic activity. The outlook for the economy, both domestically and abroad, is uncertain. Now may therefore be a good time to consider investing in defensive sectors, such as consumer staples, which may help offset a pullback in cyclical stocks. Holding a balanced portfolio that includes such investments can be a good long-term strategy for building wealth.

At?CIBC Private Wealth, we aim to take a comprehensive approach to managing, building and protecting your wealth. If you'd like to discuss this market and economic update in more detail, please get in touch with your advisor any time.