US Economic Update – June 2013

Early indicators suggest GDP growth will slow a little in the June quarter from its March quarter level. However, as the impact of tax increases and the automatic budget cuts fades, growth is expected to strengthen later in the year. We see GDP growth of 2.1% in 2013 and 2.9% in 2014.

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  • GDP growth looks likely to slow a little in the June quarter. Trend is still one of modest growth.
  • Continued easy monetary policy – even if the size of asset purchases under QE3 are reduced (so called ‘tapering’) – improving credit conditions and the housing recovery continue to support growth. As the impact of the tax increases and the automatic budget cuts fade we expect GDP growth will strengthen in the second half of the year.
  • We are forecasting GDP growth of 2.1% in 2013 and 2.9% in 2014.

Brief Economic Overview

Early indicators suggest that GDP growth will slow a little in the June quarter from its March quarter level. However, as the impact of tax increases and the automatic budget cuts fades, growth is expected to strengthen later in the year.

Not surprisingly, consumption growth which accelerated in the March quarter (partly due to a rebound from Hurricane Sandy and a weather related boost in power consumption) appears to have moderated. Nevertheless, May’s solid retail sales report suggests consumption is holding up reasonably well despite the tax increases as the start of the year. Nor are inventories likely to provide the same boost to GDP growth in as in the March quarter. However, with non-residential construction recording its first growth in four months in April and core capital goods orders still growing, we expect business investment to strengthen somewhat. Moreover, housing activity continues to grow rapidly. While the April trade figures suggested net exports might contribute to growth this quarter, the ISM export measures are more down beat and we continue to expect another small detraction from growth from net exports.

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