Chart of the Week: US economic sentiment wobbles amid shutdown uncertainty

Although the government shutdown ended nearly two months ago, it is still complicating assessment of the US economy. Some data releases were delayed and the data themselves (payrolls, unemployment, retail sales and sentiment indicators) exhibited volatility. The failure of Fathom’s US Economic Sentiment Indicator (ESI) to rebound in February suggests that the shutdown may have had more than a transitory effect and/or GDP growth was slowing anyway — both are probably true. That said, the current level of the ESI is still consistent with a solid pace of economic expansion and more than two-thirds of the ESI’s constituents are currently higher than their long-run average. Although we expect economic growth to slow this year, we still think that the economy will grow above potential, prompting inflation to rise and another two 25 basis point increases in the fed funds rate between now and the end of Q1 next year.

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