Growth, inflation and labour market all easing
US GDP is now estimated to have declined by a recession like 2.9% qoq (annualized rate) in the March quarter. However, we still think the March quarter weakness is a one-off. Other indicators do not point to an economic downturn.
The third estimate of U.S. GDP in the March quarter 2014 shows that the economy went backwards at an even greater rate than previously thought. The annualized growth rate is now estimated to be -2.9% qoq compared to -1.0% in the second estimate (and 0.1% in the advance estimate).
There were two main factors for the downward revision. Firstly, the Bureau of Economic Analysis had previously estimated strong health care consumption growth following health care law changes (“Obamacare”). However, this has now been revised away – indeed estimated growth has changed from an unusually strong 9.1% qoq (s.a.a.r.) to an unusually weak -1.4% qoq (s.a.a.r.). The other factor was a downward revision to exports, and a small upwards revision to imports, resulting in a larger detraction from net exports.
Previously our view had been that the weak March quarter result reflected a correction to strong growth in the second half 2013 as inventory accumulation slowed and the strong December quarter net export performance was unwound. Equipment investment also declined after spiking towards the end of 2013 (possibly due to tax reasons). Moreover, although difficult to quantify, a harsh winter also likely had an impact. Consumption – ex health care and utilities – was also weak which is now more apparent in the aggregate data as well.
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