US Economic Update – August 2013

US GDP rose by 1.7% (annualized rate) in the June quarter, an improvement on the March quarter, but still only a modest rate of growth. The stronger growth largely reflected a pick-up in business investment and a much smaller detraction from growth from public demand.

By

  • US GDP rose by 1.7% (annualized rate) in the June quarter, an improvement on the March quarter, but still only a modest rate of growth.
  • The stronger growth largely reflected a pick-up in business investment and a much smaller detraction from growth from public demand.
  • We are forecasting GDP growth will strengthen in the second half of the year. As a result GDP is expected to grow by 1.5% in 2013 and 2.7% in 2014.
  • Tapering of QE3 is expected to be announced following the September FOMC meeting (but the risk  is that it will be delayed to later in the year), with the end of QE not expected until the September quarter 2014. Fed fund rate rises are not expected until 2015.

Overview

US GDP in the June quarter grew by 0.4% qoq or at an annualised rate of 1.7%. While only a modest rate of growth, the result was above expectations and represents an acceleration of growth from the (downwardly revised) March quarter. Data since released suggest that there may be a small upwards revision when the second estimate of June quarter GDP is released late this month.

The stronger growth largely reflected a pick-up in business investment and a much smaller detraction from growth from public demand. Housing investment again grew strongly but consumption growth was weaker than in the previous quarter. Inventories again contributed to growth but there was a sizeable detraction from net exports due to a jump in import growth.

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