- The Federal Reserve’s highly accommodative monetary policy, improving real estate conditions, and an improved appetite for automobiles are all pushing on the U.S. economy. Fiscal tightening and cool global demand are pulling on the U.S. economy. The ramp-up of the Affordable Healthcare Act through this year is an added drag on small business hiring. The push and the pull will be felt for the remainder of this year. Buffeted by these opposing forces, U.S. GDP growth is set for an unspectacular ride through 2013, averaging near 2.0 percent for the year.
- Real GDP in the U.S. grew at a 2.5 percent annualized rate in the first quarter of this year according to the advance estimate. We are likely to see an upward revision to closer to 2.8 percent growth when the second estimate is released on May 30. Inventory accumulation played a big role in 2013Q1 GDP, adding just over 1 percent to the headline growth rate. The Q1 inventory boost was an artifact of Hurricane Sandy, which caused an inventory drawdown in the fourth quarter of last year as production was stalled in the Northeast. Government spending subtracted 0.8 percentage points from Q1 growth largely due to reduced federal spending.
- In the current second quarter real GDP growth is expected to cool to between 2.0 and 2.5 percent, with less inventory accumulation than we saw in Q1. In Q3 we have another step‐down in growth to between 1.5 and 2.0 percent. In the third quarter inventory rebuilding will be complete and output will dial down accordingly. The drag from fiscal tightening will intensify.
- With the cooler growth expected in both Q2 and Q3, the Federal Reserve will keep QE3 engaged at the current rate through mid‐summer, and likely longer. The Fed is focused on labor market conditions. Job growth north of 180,000 jobs per month in the third quarter increases the likelihood the QE3 is gradually dialed back through the fourth quarter of this year and into early 2014. Weak job gains through the third quarter would increase the odds that QE3 rolls through the remainder of 2013, to be dialed down through the first half of 2014.
- Retail sales for April registered a stronger‐than‐expected 0.1 percent nominal gain, which would look like a 0.3 percent gain after accounting for energy price declines. Retail sales of motor vehicles and parts increased by 1.0 percent in April, however, the unit auto sales figures are flat so far this year. Consumers are feeling the push and the pull. Tax hikes and spending cuts hurt, but strong home equity growth is a very broad support to U.S. households.
Click here for the complete May 2013 U.S. Economic Update.