US GDP: Loss of Momentum in US Economy - ING
James Knightley, analyst at ING Bank explained that the US 1Q16 GDP
increased at an annualised 0.5% rate versus the 0.7% consensus
expectation.
Key Quotes:
"The main
weakness was non-residential fixed investment, which fell 5.9%, thereby
subtracting 0.76 percentage points from headline growth. Net trade was
also a drag, taking 0.34% off the headline rate while inventories
subtracted 0.33%. Consumer spending held up a little better than
expected, rising 1.9% while residential investment (+14.8%) and
government spending (+1.2%) also made positive contributions.
The
report also underlines the loss of momentum that the US economy has
experienced over the past year. 2Q15 GDP growth of 3.9% followed by 2.0%
in 3Q, 1.4% in 4Q and now this 0.5% in 1Q16, is not an encouraging
trend, while the outlook for 2Q16 isn’t particularly great given
business survey readings. Nonetheless, inflation picked up more than
predicted with the core PCE deflator rising to 2.1%, which is pretty
much in line with the Fed's ”longer-run objective”. Looking at these two
outcomes together, the report doesn't really give us a clear guide as
to whether the Fed is more likely to hike at June.
Yesterday’s
FOMC statement suggested the Federal Reserve is keeping its options
open, but we think we will need to see a decent bounce in the activity
data for a June hike to occur. We still favour a September move with the
Fed then waiting until 2017 before hiking again."
