Below trend growth to continue
Economy still on track despite fall in manufacturing ISM and another weak jobs report. Following GDP growth of 1.9% in 2013 we are forecasting GDP will grow by 2.8% in 2014 and 2.9% in 2015. Inflation remains well below Fed’s 2% objective.
Towards the end of January, when the advance GDP estimate for the December quarter was released, the mood seemed to be one of general optimism. GDP grew at an annualised rate of 3.2% and growth over the second half of 2013 was the fastest half-yearly growth rate in almost two years. Even after excluding inventory accumulation, the picture was of an economy that strengthened over 2013.
However, since then some doubts have crept in. These have been driven by declines in U.S. equity prices and pressures on some emerging economies including confirmation that the Chinese economic growth was slowing down. There was also a big fall in the ISM manufacturing index, and the January jobs report was well below expectations.
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