A darkening outlook A number of things changed from the beginning of the third quarter to the beginning of the fourth quarter:
- Economic momentum has stalled. Most crucially, job growth has slowed in recent months. This shows that employers aren't confident, and it means there won't be as many new paychecks pumping dollars into the economy.
- Inflation has cooled. Inflation flared up in June, but has quickly subsided. This isn't all bad news, but it is beginning to look as though languishing prices are just one more symptom of a weak economy.
- The budget and debt-ceiling standoffs will dampen growth. No matter how long these showdowns last, failing to fund the government takes money out of the economy and undermines confidence.
- The Fed has recommitted to low interest rates. Who said anything about tapering? The Fed seems to have backed away from earlier hints that reductions in its bond-buying program were imminent, and may be unlikely to make a major change during the transition from Ben Bernanke to his successor.
- The climate of uncertainty has returned. The year began under a cloud of uncertainty about sequestration. It ends with further uncertainty about the budget and the implementation of Obamacare. Uncertainty is bad for business.