Growth, inflation and labour market all easing
Consumer confidence holding up, business sentiment stabilised in February
After a soft end to 2015, activity indicators have stabilised or shown improvement. In particular, consumption growth got off to a strong start in January, while capital goods orders rebounded suggesting that investment may be stabilising, at least outside of the mining sector. Measures of financial conditions have also shown improvement recently.
We expect that the economy will grow in 2016 at a moderate rate. As a result, unemployment should continue to fall and inflation move towards the Fed’s target.
Consumption will continue to be a key driver. Household confidence remains solid, and household incomes are benefiting from strong employment growth and, we expect, also over time from stronger wages growth as the labour market tightens further. Housing investment should also be a positive as it is still below normal levels, and low unemployment, low mortgage rates, an easing in bank lending standards, and low inventories make for a favourable environment. Fiscal policy is also acting as a gentle tailwind.
Business investment is still facing headwinds, particularly in the mining sector. If, as expected, the pace of US dollar appreciation slows and oil prices recover some lost ground, the headwinds may soften. The US dollar is also a drag on net exports, as is weak external demand, and we are not expecting any major improvement in global economic conditions.
For further details please see the attached document
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