Snapshot - Managers' views

Robust US growth figures calm recession worries

Weaker inflation suggests interest rates are likely to remain on hold.


Janet Mui

Janet Mui

Global Economist, Cazenove Capital

  • US GDP expanded by a surprisingly strong 3.2% in Q1
  • Inventories and net trade contributed to growth; domestic drivers including household consumption slowed
  • Inflation also slowed, suggesting the Federal Reserve will keep interest rates steady

US GDP expanded at a robust +3.2% quarter-on-quarter (q/q) annualised in the first quarter of 2019 (after +2.2% in Q4 2018), a big upside surprise versus consensus estimates of +2.3%. Encouragingly, all expenditure components of GDP contributed positively to growth and should help to dismiss recession concerns.

However, the mixture of growth suggests underlying demand was less robust. For example, the more volatile components such as inventory change and net trade added a combined +1.7% to Q1 GDP growth. This suggests some potential reversal in growth in the coming quarters.

Domestic drivers of growth appeared less impressive than the headline GDP: household consumption growth slowed to just +1.2% from +2.5% in Q4 2018 and contributed only +0.8% to growth. Meanwhile, fixed investment growth slowed to +1.5% from +3.1% in Q4 and, in particular, residential investment detracted growth for the fifth consecutive quarter.

Despite the stronger headline GDP growth, the personal consumption core price index (core PCE) slowed to +1.3% q/q from +1.8% q/q in Q4, modestly lower than estimates of +1.4%. This inflation measure is closely watched by the Federal Reserve.

Overall, the weakness in core PCE inflation as well as mixed growth drivers are likely to support the Federal Open Market Committee’s patient stance in not hiking interest rates this year.


Important Information
Any security(s) mentioned above is for illustrative purpose only, not a recommendation to invest or divest.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Opinions stated are matters of judgment, which may change. Information herein is believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.
Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. Exchange rate changes may cause the value of the overseas investments to rise or fall. For risks associated with investment in securities in emerging and less developed markets, please refer to the relevant offering document.
The information contained in this document is provided for information purpose only and does not constitute any solicitation and offering of investment products. Potential investors should be aware that such investments involve market risk and should be regarded as long-term investments.
Derivatives carry a high degree of risk and should only be considered by sophisticated investors.
This material, including the website, has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.