US GDP: Loss of Momentum in US Economy - ING

US GDP: Loss of Momentum in US Economy - ING

28 April 2016, 19:15
Roberto Jacobs

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."


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