US: We Anticipated a Rebound in Growth in Q2 After a Weak Q1 - Lloyds
US: We Anticipated a Rebound in Growth in Q2 After a Weak Q1 - Lloyds
Analysts from Lloyds Bank point out that employment growth remained
solid in Q1, but with limited upward pressure on wage growth and also
noted that economic indicators point to a weak Q1 GDP growth.
Key Quotes:
“In
contrast, indicators of output and expenditure suggest a somewhat
weaker print for Q1 GDP than had been previously expected, with a
significant risk of a lower outturn than the annualised rate of 1.4%
seen in Q4. Despite further improvements in the labour market,
consumption appears to have weakened over the quarter.”
“With Q1
growth expected to be disappointingly weak, policymakers will be looking
closely for evidence of a strong rebound in Q2. A number of business
surveys point to a firmer end to Q1. The ISM manufacturing index in
March, for example, increased above the key 50 level separating
expansion and contraction for the first time since August, while the
non-manufacturing index was also firmer than expected, rising to a
three-month high of 54.5. For the year as a whole, we have revised down
our growth forecast for 2016 to 2.2% from 2.4%, which would be a shade
weaker than last year.
“An April rate rise is unlikely, but June
remains on the cards. Financial markets are pricing in only about an
evens probability of one quarter-point hike this year, in contrast to
the latest Fed median ‘dot plot’ which show policymakers anticipating
two hikes. Our own view is for two hikes this year in June and December.”
“Indications
of weak Q1 GDP and uncertainties about the sustainability of recent
stirrings of higher inflation mean that policymakers are unlikely to
raise rates at the 27th April meeting. Nevertheless, we believe the
underlying US economy remains sufficiently strong to warrant a quicker
pace of tightening than markets are currently expecting. Employment
growth remains strong, which should eventually lead to higher wage
growth, while we anticipated a rebound in growth in Q2.”
