US: Economy growing modestly above trend - NAB

Tony Kelly, Senior Economist at NAB, explains that after a weak start to 2017, US GDP growth rebounded in the June quarter and by looking through the quarterly volatility points to an economy growing modestly above trend.

Key Quotes

“US GDP grew by 0.6% qoq or 2.6% on an annualised basis in the June quarter 2017, following a subdued start to the year (1.2% annualised growth in the March quarter). Growth over the year to the June quarter was 2.1%, the highest annual growth rate since the September quarter 2015.”

“The June quarter advance estimate also included revisions to the prior three years. Overall, the revisions were relatively small, with slightly faster growth over 2014 and 2015 being offset by slower growth over 2016 and into early 2017.”

“The acceleration in June quarter growth was led by private consumption, as well as the absence of a significant inventory drag. Government spending also turned modestly positive. The contribution to growth from business investment and net exports moderated, while residential investment turned down in the quarter.”

“The advance estimate for June quarter GDP growth was broadly in line with expectations – both in terms of the overall result (we had expected 2.7% qoq annualised) as well as its composition. As such it does not materially change the outlook for the US economy.”

“After a weak start to the quarter – a common occurrence in recent years – growth was expected to rebound and it did. Taking the first two quarters together suggests that the economy continues to grow at a rate modestly above its longer-term trend. The Congressional Budget Office’s estimate of potential GDP growth for the first half of 2017 is an annualised 1.5%, below the actual 1.9% achieved.”

“We are forecasting GDP growth of 2.0% in 2017 (revised down from 2.1%) and 2.3% in 2018. The downward revision to 2017 simply reflects the impact of the downward revision to recent history by the statistician rather than any shift in the outlook.”

“The forecast strengthening in growth in 2018 reflects an allowance for fiscal policy stimulus. However, there is no guarantee this will eventuate as congressional Republicans are yet to agree on a tax package, and the extent to which any tax cuts are offset by other measures is uncertain.”