Economic growth has slowed and there’s no sign that output will reaccelerate any time soon. But there’s also minimal evidence that the economy is due to crumble in next month’s third-quarter GDP report. Instead, the macro trend continues to plod along at a subdued pace.

The median estimate for US output in Q3 continues to print at 2.0%, based on the nowcasts for several models compiled by The Capital Spectator. The current median estimate matches the 2.0% rise in Q2. Today’s update is also unchanged from the previous 2.0% nowcast for Q3 (published Aug. 27).

Recession forecasts are flying around from all corners, but economic contraction remains a low-probability risk factor for Q3 data, which is scheduled for release from the Bureau of Economic Analysis on Oct. 30. A lot can change between now and the end of next month and so today’s nowcasts should be viewed cautiously. Nonetheless, despite the uncertainty linked to the trade war with China, the US economic trend continues to reflect a degree of resilience in maintaining a slow-growth posture.

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It’s unclear if the slowdown will continue to deteriorate in Q4 and beyond, but today’s update suggests that the initial GDP report for Q3 will show that the ten-year-old expansion (the longest on record) will survive for the immediate future.

Although economic activity appears to have stabilized, it’s also clear that headwinds are building, based on PMI survey data.

“US businesses reported one of the toughest months since the global financial crisis in August, with growth of output, order books and hiring all slowing amid steep falls in both export and business confidence,” Chris Williamson, chief business economist at IHS Markit, said last week.

A major factor behind the deterioration was the spreading of the manufacturing downturn to the service sector, via weakened household and business confidence. Jobs growth is also increasingly being affected by worries regarding the outlook. Overall jobs growth in August was the weakest since early-2012, commensurate with non-farm payrolls rising at a monthly rate of under 100,000.

The next several weeks will be critical for deciding if today’s relatively upbeat Q3 GDP nowcast profile will stumble in upcoming updates. The next key release to watch is this Friday’s update on retail sales for August (Sep. 13). The current outlook is modestly encouraging. Economists are looking for moderate 0.3% increase for the monthly change, based on Econoday.com’s consensus point forecast. That outlook translates to a firmer one-year gain of 3.8% — a four-month high.

Meantime, today’s revised GDP point forecast for the one-year change projects that annual growth will more or less stabilize around the 2% mark for the near term, based on The Capital Spectator’s average estimate from a set of combination forecasts. A 2% annual pace is probably strong enough to keep the US out of a recession.

The question is whether the ongoing trade war between the US and China will deliver downside surprises in data releases in the weeks ahead? The conflict has already taken a bite out of economic activity and the longer the impasse rolls on, the bigger the headwind. Moody’s Analytics estimates that the trade war has already reduced US payrolls by 300,000 jobs.

For now, the US economy’s expansion grinds on, battered and bruised though it is. At some point gravity will take its course, assuming the current state of policy endures. The critical variable on what happens next remains tightly bound up with the Trump administration’s decisions on trade. On that front, however, the future remains uncertain in the extreme.

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