US Economic Update – September 2013

US GDP for the June quarter revised up from 1.7% (annualized rate) to 2.5%. While some partial indicators were soft at the start of the September quarter, business surveys point to a stronger underlying momentum in the economy. We have revised up our forecast for GDP growth in 2013 to 1.6%

By

  • US GDP for the June quarter revised up from 1.7% (annualized rate) to 2.5%.
  • While some partial indicators were soft at the start of the September quarter, business surveys point to a stronger underlying momentum in the economy.
  • We have revised up our forecast for GDP growth in 2013 to 1.6% (from 1.5%) and expect growth of 2.7% in 2014 (unchanged).
  • Tapering of QE3 is expected to be announced following the September FOMC meeting, but it is not a done deal. The complete end of QE asset purchases not expected until mid-2014. Fed fund rate rises are not expected until 2015.

Overview

The U.S. statistician revised up June quarter GDP growth from its advance estimate of 1.7% qoq (annualised rate) to 2.5% qoq. This mainly reflected a better net export performance and, to a lesser extent, a higher estimate of inventory growth. As a result, while we had previously expected growth to strengthen over the second half of the year, we now expect growth in the September quarter to weaken a bit before strengthening towards the end of the year. This partly reflects the stock cycle; excluding the contribution from inventories, our forecasts imply a pick-up in growth over the course of the year.

It also reflects some weakness in partial indicators at the start of the September quarter. In July, personal consumption expenditure was essentially flat, capital goods shipments declined, and residential construction growth continued to slow down. July trade data were also a negative for GDP although this appears to be a correction to the very strong results the month before. Otherwise, we see this weakness as either largely being due to transitory factors (weather related reductions in power consumption) or temporary. Supporting this view, the ISM surveys have picked up noticeably over July and August suggesting reasonably strong underlying momentum in the economy.

For further analysis download the full report.