• US GDP fell by 0.1% (annualized rate) in the December quarter but the underlying trend is modest growth.
• Extremely loose monetary policy likely to continue for an extended period.
• Expect QE3 monthly asset purchases will finish at end of 2013 (an end to continued loosening of policy).
• Fed funds rate likely on hold until late 2015/early 2016.

USGDP in the December quarter fell by the smallest of margins (0.04% qoq or 0.1% annualised). The decline was largely due to the reversal of temporary factors that boosted growth in the previous quarter. The pace of consumption, business and housing investment spending growth all strengthened suggesting solid underlying momentum in the economy despite the poor headline number.

This is also the takeaway from other broad based measures of the economy such as a composite of the ISM surveys. Indeed the manufacturing ISM PMI strengthened in January to its highest level since April 2012 while the non-manufacturing survey, although slightly down, was still solid. Moreover, despite a small rise in the unemployment rate (to 7.9% from 7.8%), the January employment data pointed to continuing steady non-farm employment growth.

For further analysis download the full report.

• US Economic Update – February 2013 (PDF 244 KB)