U.S. Registries – Linking buyers and sellers across North America

Strong surveys at odds with slowing growth

•The incoming monthly activity data suggest that GDP growth has slowed from 2.6% annualised in the fourth quarter to only around 1.5% in the first. At the same time, however, the business surveys have remained relatively upbeat, with a weighted average of the ISM activity surveys consistent with GDP growth accelerating above 4% annualised. (See Chart.) It’s clearly possible that growth picks up again in the second quarter. The rebound in consumer confidence suggests that consumption will continue to recover from the plunge in December, while a potential trade deal with China could give a temporary liftto exports. But with the fiscal boost having faded, and the continued slowdown in durables consumption and housing activity suggesting that higher interest rates are taking a heavier toll, a sustained recovery looks unlikely. We expect GDP growth to remain below its 2% potential pace this year, ruling out any further rate hikes from the Fed and ensuring that market expectations of rate cuts will continue to grow.
•Output and activity indicatorsshow that manufacturing output is set to fall in the first quarter. (Page 2.)
•Consumption indicatorsillustrate that spending growth has also slowed sharply.(Page 3.)
•Investment indicators suggest that business equipment investment growth is set to drop back. (Page 4.)
•External indicators reveal that the weakness of exports can’t solely be explained by China. (Page 5.)
•Labour market indicators remain consistent with a gradual acceleration in wage growth. (Page 6.)
•Inflation indicators point to a continued easing in underlying price pressures. (Pages 7 & 8.)
•Financial market indicators show that a 25bp Fed rate cut next year is now fully priced in. (Page 9.)
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