Recession worries have become topical in recent months, but the odds are low that a smoking gun will be found in next month’s initial report on third-quarter GDP, according to a revised set of nowcasts. In fact, the current numbers reflect a slightly stronger outlook compared with estimates from early September.

The median nowcast points to a 2.2% increase in US output for Q3, based on several models reviewed by The Capital Spectator. If correct, this median outlook represents a mildly firmer increase vs. the 2.0% gain in Q2.

Today’s median estimate also reflects an uptick from the 2.0% estimate for Q3 reported on these pages on Sep. 11. Nowcasts, like all attempts to divine the future, fluctuate as new numbers are published and so today’s outlook should be used as a guide that’s subject to change. Nonetheless, it’s encouraging to see that the profile for the current quarter isn’t deteriorating.

Slow growth remains the best-case guess for the US economy, based on current data. But if the latest survey data is accurate, the potential for trouble in Q4 isn’t easily dismissed.

PMI numbers for September show an economic trend that’s close to stagnating, IHS Markit reports. The US Composite Output Index ticked up to 51.0 in the flash estimate for September—a two-month high. But the current reading remains close to the neutral 50 mark that separates growth from contraction and so trouble may be lurking later in the year if job growth continues to slow and consumer spending stumbles — the two main components that are keeping the 10-year-old expansion–the longest on record–alive.

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“The survey indicates that businesses continue to struggle against the headwinds of trade worries and elevated uncertainty about the outlook,” says Chris Williamson, chief business economist at IHS Markit. “Although picking up slightly, the overall rate of growth in September remained among the weakest since 2016, commensurate with GDP rising in the third quarter at a subdued annualized rate of approximately 1.5%.”

Analysts at the Economic Cycle Research Institute are also wary, advising yesterday that the recent deceleration in growth continues. “The hard data show that the slowdown in US economic growth — which began over a year ago, as ECRI had predicted — is ongoing. And our research says that it won’t end anytime soon,” write Lakshman Achuthan and Anirvan Banerji, the consultancy’s co-founders. “If economic growth and job growth keep slowing, there remains a real risk that those slowdowns will culminate into a recession.”

Note, however, that today’s revised GDP point forecast for the one-year change suggests that a relatively stable run of slow growth will prevail. Incoming data in the days and weeks ahead could change the calculus, of course, but for now a cautious optimism prevails. Year-over-year growth in GDP is expected to more or less hold steady around the 2% mark for the near term, based on The Capital Spectator’s average estimate from a set of combination forecasts. 

Note, too, that the Chicago Fed’s August report on the economy show that a mildly firmer trend remains in play, based on the three-month average of the bank’s National Activity Index. As a result, output grew at a pace that was only slightly below the historical trend–the fastest rate in six months.

But the mildly positive outlook is susceptible to things that go bump in the night. Now that growth has slowed there’s precious little room for downside surprises. The next major hurdle: this Friday’s update (Sep. 27) on consumer spending for August. Economists are looking for a 0.3% increase, based on Econoday.com’s consensus forecast. That’s half the rate from July’s blowout 0.6% gain, but if the crowd is right the report will provide more support for thinking that slow growth will persevere.

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