US: GDP growth is on track to rebound in the June quarter – NAB

Early indications suggest that US GDP growth is on track to rebound in the June quarter, according to Tony Kelly, Senior Economist at NAB.

Key Quotes

“The ongoing decline in the unemployment rate is consistent with an economy growing above its longer-term trend level, and we expect this to continue over the rest of this year. The Fed is expected to increase the fed funds rate at its June meeting.”

“March quarter GDP growth was revised up to 1.2% qoq (annualised) from the advance estimate of 0.7%. This still represents a slow rate of growth and is in stark contrast to the more positive business survey and consumer sentiment measures, which have been solid so far in 2017.”

“However, these surveys are not part of the GDP calculations. For the most part, data that are part of GDP calculations are only available to April, so it is still early days in terms of getting a handle on where growth for the quarter will fall. Nevertheless, there has been a clear strengthening in consumption growth. As a result, the large gap between what consumer sentiment was signalling and actual reported spending has narrowed.”

“Other indicators of activity have been more mixed. Business and residential investment were reasonably strong in the March quarter, but look set to record a slower rate of growth in the June quarter. While new residential construction remains sold, lower house sales so far in the quarter are a drag. Non-residential construction spending is also down in the quarter so far, but this does not include the energy sector construction, which continues to show robust growth.”

“Despite weakness in some indicators for the June quarter, with consumption strengthening, and making up almost 70% of GDP, overall they are signalling stronger GDP growth.”

“We are currently expecting growth in the June quarter of around 2¾% qoq (annualised). However, even if this eventuates, it would likely overstate the strength of the economy just as the March quarter outcome under represented it. For the second half of the year we expect moderate, but still above longterm trend, growth.”

“Over the rest of 2017, support for growth will come from a variety of sources. Consumption growth should benefit from the tightening labour market and rising wealth, particularly given that the overall household balance sheet is in good shape. These factors are also positive for housing investment, although we expect some slowdown from the recent rapid growth.”

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