Tracking Economic Health: The Recession Checklist
With headlines focused on government shutdowns, slowing consumer spending, and questions about the direction of the economy, now is the perfect time to revisit our recession checklist, an essential tool we use weekly to evaluate the economy’s health. This checklist functions like a diagnostic report, monitoring key leading indicators such as GDP growth, employment trends, consumer confidence, and manufacturing activity. Currently, three of the eight indicators we track are signaling caution: housing, consumer expectations, and manufacturing. Housing permits have lost momentum amid elevated rates, though we expect improvement as rates ease. Consumer expectations have weakened due to political uncertainty and stubborn inflation, while manufacturing continues to be pressured by ongoing tariff issues. Even so, the broader data remains resilient. Corporate earnings continue to come in strong, a crucial factor supporting equity markets. As we navigate these mixed signals, our focus remains on identifying whether economic softness is temporary or the start of a longer trend.
Reading the Fed’s Next Move
As the Federal Reserve prepares to meet this week, markets seem surprisingly quiet. That silence itself is worth noting, historically, it’s often the events investors aren’t watching that deliver the biggest surprises. We expect the Fed to announce a 25-basis-point rate cut. However, the more important question is what happens next. When the Fed adjusts rates, it’s setting the price of time, balancing what savers earn and what borrowers pay. Last year, a rate cut hurt savers without helping borrowers, as long-term rates rose. This year, we’re beginning to see improvement: mortgage rates and 10-year Treasury yields have both edged lower, signaling better alignment between short- and long-term rates. For the economy to benefit, this downward movement must continue. Lower long-term rates stimulate borrowing, business investment, and housing, key engines of growth. As we monitor the Fed’s actions, our checklist ensures we’re watching not just policy decisions, but their ripple effects across savings, lending, and economic expansion.
The Federal Deficit and Quantitative Tightening
Another important factor shaping the economic outlook is the federal deficit. The government’s fiscal year recently closed on September 30, and the numbers show a deficit of $1.775 trillion, still enormous, but slightly improved. The figure is $41 billion smaller than last year’s deficit and $34 billion lower than prior projections. While the improvement is incremental, progress is progress. Looking ahead, tax policy changes and improved revenue collection could help narrow the gap further over the next several years. In addition to fiscal policy, we’re closely watching the Federal Reserve’s approach to quantitative tightening (QT), the process of reducing its balance sheet by allowing bonds to mature without reinvestment. If the Fed signals a slowdown or end to QT, that could inject more liquidity into the financial system, a historically positive development for equity markets. As we move into the final quarter of the year, we’ll be paying close attention not just to rate decisions, but also to balance sheet policy, both critical to market stability heading into 2026.
President and CEO
Wealth Consultant
Bobby Norman, CFP®, AIF®, CEPA®
Managing Director
Wealth Consultant
Chief Investment Officer
Wealth Consultant
Vice President
Wealth Consultant
Fi Plan Partners is an independent investment firm in Birmingham, AL, with a team of professionals serving clients across the nation through financial planning, wealth management and business consulting. The team at Fi Plan Partners creates strategies in the best interest of their clients using fee based investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.
Securities and advisory services offered through LPL Financial, Member FINRA/SIPC and a registered investment advisor.
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