US Economic Update – October 2013

September quarter GDP growth expected to be 2.0% qoq (annualised rate). Business surveys more positive on strength of the economy. Partial U.S. Government shutdown will not have a major direct impact on the economy.

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  • September quarter GDP growth expected to be 2.0% qoq (annualised rate). Business surveys more positive on strength of the economy.
  • Partial U.S. Government shutdown will not have a major direct impact on the economy. Main risk is a major fall in confidence if the shutdown drags on and/or the likelihood of increasing the debt limit in time becomes more uncertain.
  • We are forecasting GDP growth in 2013 of 1.6% and 2.7% in 2014.
  • Tapering of QE3 now expected to be announced following the December FOMC meeting, but risks weighted to a later start date.

Overview

The U.S. economy continues its drawn out recovery with indicators suggesting GDP growth in the September quarter was only moderate. We are currently projecting growth was 2.0% (annualized rate) in the quarter, although the delayed release of several indicators due to the partial U.S. government shutdown makes tracking GDP even more difficult than normal. Consumption growth in the quarter has been modest, as have capital goods shipments/orders, and housing construction has slowed, although home sales are growing rapidly, and government demand continues to be a drag. This level of growth would be slower than the June quarter, but excluding the stock cycle, it would mean a broadly unchanged underlying pace of growth.

Business surveys have been more positive. While the non-manufacturing ISM dipped in September, it remained above its June quarter average, and our combined ISM measure in September month is still at a level, if sustained, consistent with a modest strengthening in the economy’s growth rate.

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