Growth, inflation and labour market all easing
Recent partial indicators of economic activity have been positive. With inventories also tracking more strongly than expected, December quarter GDP growth is now estimated to be 0.7% qoq (3.0% annualised). We are forecasting GDP growth of 1.9% in 2013
Recent partial indicators of economic activity for the United States have generally been positive with solid, if not strong, readings for total consumption, business investment, and exports. This is a positive for December quarter GDP, for which the advance estimate will be released at the end of the month. Moreover, while still not expected to match the very strong September quarter pace, inventory accumulation has been greater than we expected so far during the quarter. As a result we have revised up our forecast of December quarter GDP, and we now expect growth of 0.7% qoq (3.0% annualised rate). While this would be a slower growth rate than in the September quarter, if the contribution from inventories is excluded – which gives a better guide to the underlying strength of demand – such a result would indicate that the economy strengthened at the end of 2013.
To some extent this strength is expected to be temporary; December retail sales data suggest consumption growth moderated in December, and net exports are unlikely to be as strong in following quarters. Extreme weather may also lead to a temporary slowdown in some indicators. Our forecasts also now factor in a slower return to a more normal level of inventory accumulation, which means that stocks will detract from growth in 2014.
Nevertheless, annual average growth in 2014 is expected to be stronger than in 2013. One factor behind this is that the headwind from fiscal policy is becoming more muted and fiscal policy uncertainty has fallen (although the debt ceiling remains a risk).
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