ECONOMICALLY speaking, things are not getting much better, but they aren't getting much worse, either.
The latest data available suggest that the U.S. economy continues to grow, albeit slowly, with the Federal Reserve holding on to its third Quantitative Easing (QE3) strategy for the time being.
The Fed surprised investors and analysts last month by postponing a widely expected winding down of its economic stimulus plan, citing a desire to see more evidence of economic growth before backing away from its bond buying spree.
Instead, it continued with plans to purchase $85 billion in bonds monthly, despite previous comments from Fed chair Ben Bernanke that the program would likely peter out by year's end.
"There is no preset course," he said following the September meeting of the Federal Open Markets Committee (FOMC). "If the data confirm our basic outlook, if we gain more confidence in that outlook, then we could move later this year."
Bernanke's term ends in January, and some speculation now centers on the changing of the guard as the point at which the Fed will shift its course on the stimulus package as well.
Given the headwinds still assailing the U.S. economy, it may not be as surprising that the Fed didn't make a major move in September.
"On the one hand, there has been a continued decline in the unemployment rate, strong Institute for Supply Management numbers and an upward revision to second-quarter GDP (gross domestic product)," Sterne Agee chief economist Lindsey Piegza said. "On the other hand, payroll growth is slowing, the decline in the unemployment rate has been, at least in part, the result of inorganic measures such as a decline in the participation rate, retail sales have been lackluster and the latest report shows a steep decline in consumer confidence."
Fed hawks, led by Federal Reserve Bank of Kansas City president Esther George, have advocated for a tapering of the bond purchases as the economy improves, but as of yet, they remain in the minority among FOMC voters.
The latest Kansas City Financial Stress Index indicates that financial stress remains subdued. The index of 11 key variables measuring stress in the U.S. financial system reached 19 consecutive months below its long-term average as of September. The index began to show signs of trouble in late 2007, accelerated rapidly to its peak in October 2008 and has fallen considerably since then.
The Federal Reserve Bank of Chicago, meanwhile, released its Midwest Economy Index last week, which showed an increase in August and economic growth that was relatively higher than the national growth rate.
Despite the Fed's best efforts, one policy expert said it hasn't been enough. Ernie Goss, a professor of regional economics at Creighton University, said his latest economic trend surveys all point to slow economic growth in the final quarter of the year, coupled with rising inflationary pressures.
"Despite record economic stimuli from the Fed and the government, the U.S. economy continues to stumble," he said, noting that 300,000 unemployed Americans gave up looking for work in August, the 40th consecutive month that the number of workers leaving the workforce exceeded the number who found a job. "Even the biggest boosters of past economic intervention must concede that they have not succeeded."
Goss said if the number of "discouraged workers" started looking for a job again, the nation's unemployment rate would jump from the current 7.3% to roughly 10%.
Listing a number of things the government should do to effectively jump-start the economy, Goss said the Fed should begin unwinding its QE3 money expansion program sooner rather than later.
In addition, he said the government should "reduce the incentives for not working," citing a Cato Institute study that calculated that federal entitlements such as food stamps, federal disability pay, housing assistance and Medicaid exceeded $12 per hour.
Further, Goss said Congress should continue with the sequestration of federal spending, which provides businesses with greater certainty, but should raise the government's debt ceiling without conditions. While the government shutdown continues, the debate over increasing the debt ceiling looms just around the corner.
"Over the next six months, I expect inflationary pressures, as captured by the Consumer Price Index, to move above the Federal Reserve's comfort level of 2%," he concluded. "I expect the annual rate to rise to 3% by the end of the year. Oil prices could be another factor contributing to rising inflationary pressures and slower economic growth."