US GDP rebounded strongly in the second quarter following the weakness in the first three months of the year. Annualised GDP growth came in at 4.0% in the 3-months to June, a sharp recovery from the revised contraction of -2.1% in the March quarter. This confirmed the weak March quarter was an aberration.
said the detail of the June quarter result was somewhat weaker than the
headline suggested. It was the
substantial turnaround in inventories that accounted for around half the
improvement between the two quarters.
The percentage point contribution to growth from inventories was -1.2%
in Q1 and +1.7% in Q2. Real final sales
came in at only +2.3% (annualised) although that growth was broad based
including 2.5% for consumption. Net
exports was the major negative contribution detracting -0.6% over the quarter.
with the sharper-than-expected rebound over the quarter, growth for the first
half of the year was a miserly 0.9%. We
expect growth of around 3.0% for the second half of the year as we expect
further solid gains in employment which will help underpin consumption, strong
business investment and less drag from net exports. That will deliver calendar year annual
average growth of 2.1%, still a touch lower than the upwardly revised 2013
outcome of 2.2%.
payrolls data came in at +209k, lower than the expected +230k. While the markets were disappointed in the
result, it’s now the sixth month on the trot of employment growth in excess of
200k. Six months ago that would have
been considered a great outcome!
unemployment rate edged up to 6.2% but only because the participation rate
edged up too. That in itself is a sign
of a stronger labour market. After five
years of solid decline the participation rate has now held steady since late
last year. We expect that will continue to
put a bit of a brake on future falls in the unemployment rate.
were flat in the month with the annual rate coming in at 2.0%. The Employment Cost Index put in a healthy
quarterly increase of 0.7% (not annualised).
While that seems like a big increase it takes the annual rate to 2.0%,
the same as the still subdued annual increase in wages. While annual wage rates are still subdued,
wages are trending higher. We expect
that to continue into the second half of the year.
wages are trending higher, as are core measures of inflation, there is no need
for panic. The FOMC was still pretty
relaxed last week. While they
acknowledged the improved economic conditions, they also concluded that the
downside risk to inflation had diminished. The committee kept the forward
guidance unchanged although there was one dissenter in the ranks which will
make the minutes an interesting read.
are still happy to be amongst the consensus of no interest rate hikes till mid
next year – the risks to me appear to be biased towards an earlier rather than
a later move. Whatever the eventual
answer, markets will have anticipated this well in advance.