Right from the start of the recovery in developed markets we knew it would be hard work and that it would progress in a non-linear fashion, i.e. there would be good months and quarters followed by some not-so-good months and quarters.
This would be especially the case with regard to consumption as household's focussed on debt retirement at the same time as they faced head-on into the dual headwinds of high unemployment and a housing market that was, and still is, struggling to find a base. With that in mind, consumption would remain sensitive to further shocks.
Q1 2011 US GDP looks like being a stark reminder of these factors. It was only a couple of weeks ago that I was thinking about the 2011 quarterly growth trajectory and was comfortable with my pick of a 2.5% seasonally adjusted annual rate (saar) increase for Q1. I now find myself thinking it will be considerably lower.
Going back to the end of last year, I did not believe the 4% increase in consumption expenditure in Q4 2010 would be sustained. Remember we attributed at least some of that strength to year-end deleveraging fatigue. Households went on a little splurge at Christmas, but we thought consumption growth would come back a bit into the new year. This would be exacerbated (in volume terms) by higher commodity prices, but these factors would be somewhat offset by some better jobs growth.
As it turns out it looks like Q1 consumpion expenditure will come in at less than half the 4% annual pace of Q4 at around 1.7%. Add that to stronger imports over the quarter and the resultant negative contribution from net exports, it looks like Q1 GDP will come in around 1.5% (saar). That compares with 3.1% in Q4.
So let's just remind ourselves of some of our 2009 messages: The US recovery will be hard work; it will be "non-linear" and sensitive to further shocks (especially if those shocks are to household budgets).
I'm still leaving my full-year 2011 GDP forecast at 3.0%, only mildly regretting (at this stage) that I revised it up from 2.5% at the end of last year....