Growth, inflation and labour market all easing
GDP growth is expected to decelerate in the March quarter, partly reflecting the temporary impact of a severe winter. The recovery should get back on a firmer footing over the rest of 2014. We are still expecting GDP growth of 2.6% in 2014 and 2.9% in 2015.that
Economic growth appears to have decelerated in the United States in the March quarter. Some of this is likely due to the harsh winter and cold start to spring, although other factors are likely to be in play – we had been expecting some slowdown from the strong growth of the second half of 2013 which had been in part driven by inventory accumulation. We have revised down our forecast for the March quarter – to a 1.3% annualised growth rate (previously 1.9%) largely reflecting weak trade data for February, revisions to historical consumption data and mixed fixed investment data.
The softening in the economy can be seen in the ISM manufacturing and non-manufacturing surveys (shown below on a quarterly basis). However, consistent with the view that the slowdown reflects some temporary factors, the ISM indicators have started to strengthen in the last month or two. While they are still only at levels consistent with moderate growth, the weather was still being mentioned as a negative factor by some survey respondents in March, so there is scope for further improvement.
Consumption growth also strengthened in February and there was a surge in auto sales in March, consistent with activity strengthening heading into the June quarter. Labour market data have also improved over the last couple of months, with the weakness in non-farm employment growth reported in December and January short-lived.
Looking over the rest of 2014 and into 2015, our view of the factors that will drive the U.S. economy is largely unchanged. Household consumption will be supported by continuing employment growth as well as improved balance sheets. As the labour market recovery progresses, the modest wage growth of recent times may also start to pick-up.
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