Snapshot - Economics
Robust US growth figures calm recession worries
Weaker inflation suggests interest rates are likely to remain on hold
26 April 2019
- 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: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.