US: Underlying strength in the economy is stronger than the headline numbers suggest - ANZ

Con Williams, Rural Economist at ANZ, explains that while the 2nd estimate of US Q4 GDP was unchanged at just 1.9% (exp 2.1%), the underlying strength in the US economy is stronger than the headline numbers suggest.

Key Quotes

“This momentum looks like it will be carried into Q1 2017 with recent forward looking indicators pointing toward 2½% growth. Current momentum was again highlighted overnight with February consumer confidence rising to 114.8 with both present and future expectations indices lifting. It’s the highest headline reading since July 2001 and typically implies firm consumption growth. It might also have implications for encouraging people back into the labour force (increasing participation rate), which would be good news for growth from a structural perspective and help offset demographic headwinds.”

“Regional manufacturing surveys were strong overnight too. The likes of the Chicago PMI bounced to 57.4, and above the November 2016 election bump. Underlying details were nearly all upbeat, with business, prices, new orders, employment, and production signalling expansion. Backlogs of orders fell and inventories rose.”

“So all up over the past six months the US economy has grown at a 2.7% saar clip. That is above potential growth estimates of 1.8%. The Fed has been prepared to let the economy run "hot", but for how long is the question, especially with the new administration targeting 3%+ growth? If the FOMC wants the optionality of tightening in March, it will need to talk up that prospect this week.”