Growth, inflation and labour market all easing
The economy is now estimated to have gone backwards in the March quarter. However, indicators point to a bounce back in the June quarter. Recovery expected to continue over the rest of 2014 and into 2015. We expect growth of around 2¼% this year and 3% in 2015.
The initial estimate of U.S. growth in the March quarter of 0.1% qoq (annualised rate) was revised down in the second estimate to -1.0% qoq (annualised rate). This mainly reflected a greater estimated slowdown in inventory accumulation.
The downwards revision does not change our view that the poor March quarter outcome is only temporary and does not reflect the underlying state of the economy. It was the result of a correction to the strong growth in the second half of 2013 (which included an inventory build-up) and other factors such as an unusually harsh winter. Survey measures of business activity – while softening in the quarter – did not move to levels indicative of a downturn in the economy and they have since recovered.
Moreover, indicators point to a bounce back in economic growth in the current (June) quarter. Partial indicators of consumption, business investment, exports and employment are tracking above their March quarter level, and housing activity looks to have bottomed out. Imports have also grown strongly and, while mechanically this enters into GDP calculation as a negative factor, this is consistent with an increase in domestic demand and/or inventory accumulation.
We see conditions remaining generally favourable over the rest of 2014 and through 2015, supporting above trend growth in the economy.
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