• Economic (GDP) growth appears to have resumed in March quarter after December quarter lull.
• We are expecting GDP growth of 2.2% in 2013 and 2.9% in 2014. Growth to be supported by some fading headwinds, growing business investment and continued recovery in the housing market. Federal fiscal policy will be a drag.
• Any tightening in monetary policy is a long-way off. When the Fed funds rate does start to rise we expect that it will move towards a rate of 4% in the long-term (the ‘equilibrium’ rate).

Economic Overview

Economic indicators available for the March quarter are pointing to a resumption of GDP growth following an essentially flat December quarter (the small decline in the Advance GDP estimate has been revised away). In particular, the ISM manufacturing and non-manufacturing surveys are consistent with above trend growth.

Consumer spending growth slowed in December and January (following a large increase in November post-HurricaneSandy). However, this was still a positive outcome given the hit to incomes from the January tax increases. Household disposable income fell 4.0% mom in January reflecting the tax increases as well as the fact that some income was brought forward (out of 2013) into 2012 to escape the tax rises. This has led to a big swing in the household savings ratio as households smooth out the impact of these income swings on their consumption.

For further analysis download the full report.

• US Economic Update – March 2013 (PDF 252 KB )