US Economic Update – July 2013

Overall, the US economy appears to be continuing to grow at a modest pace. While GDP growth is likely to slow in the June quarter, this is partly due to an expected inventory correction. We are forecasting GDP growth will strengthen in the second half of the year.

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  • Overall, the US economy appears to be continuing to grow at a modest pace.  While GDP growth is likely to slow in the June quarter, this is partly due to an expected inventory correction.
  • We are forecasting GDP growth will strengthen in second half the year. As a result GDP is expected to grow by 1.8% in 2013 (previously 2.1%) and 2.7% (previously 2.9%) in 2014.
  • Tapering of QE3 expected to be announced following the September FOMC meeting (but risk 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

Overall, the US economy appears to be continuing to grow at a modest pace. While indicators suggest that GDP growth will slow in the June quarter from its March quarter level, this will partly reflect a temporary inventory correction. The underlying pace of growth is still expected to strengthen later in the year.

We have revised down our forecasts for June quarter GDP from 0.5% qoq to 0.3% qoq (or 1.1% on an annualised basis). This reflects a combination of factors including downward revisions to past consumption data by the BEA, weak non-residential construction and trade outcomes for May, and weak inventory data.

Inventory movements tend to have little impact over time on GDP growth. The ‘final sales of domestic product’ measure excludes inventories and can give a better underlying picture of demand for U.S. goods and services. On this basis, the June quarter is expected to be similar to the March quarter (perhaps a bit stronger).

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