29 Apr 2016
US: Subdued growth, but inflation picks up – ING
James Knightley, Senior Economist at ING, notes that while US GDP growth disappointed in 1Q16, the PCE deflator spiked to a four-year high, which will only add to the headaches of FOMC members.
Key Quotes
“Yesterday’s 1Q16 GDP reports showed the economy increased at an annualised 0.5% rate versus the 0.7% consensus expectation with the main weakness coming from non-residential fixed investment. It fell 5.9%, the worst outcome since 2Q09, 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” as it is the fastest rate of inflation since 1Q12. 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.
Wednesday’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.”
Key Quotes
“Yesterday’s 1Q16 GDP reports showed the economy increased at an annualised 0.5% rate versus the 0.7% consensus expectation with the main weakness coming from non-residential fixed investment. It fell 5.9%, the worst outcome since 2Q09, 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” as it is the fastest rate of inflation since 1Q12. 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.
Wednesday’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.”