US: Upgraded 2013 Consensus Growth Outlook

Consensus Forecasts

The third, and final, release for US Q4 GDP showed a modest improvement in the q-o-q annualized outturn for activity. Real GDP grew by 0.4% in the final three months of last year, as opposed to the 0.1% figure announced previously. However, this still represented a marked slowdown from the third quarter’s 3.1% pace, due to Hurricane Sandy and a sharp fall in defense spending. On the upside, business investment flourished after a 1.9% (q-o-q annualized) decline in Q3, with the Q4 figure revised from a 9.9% advance to a 13.4% surge. This rebound could encourage business spending going into 2013, although February’s factory goods report showed that non-defense capital orders (excluding aircraft) – a variable which closely tracks business investment patterns – fell by 3.2% (m-o-m) following January’s 6.7% resurgence. However, orders for computers and other electronics rose slightly in February and overall manufacturing orders soared by 3.0% over the month, their biggest gain in five months. It is still unclear how exactly government sequestered cuts (which came into effect on March 1) will impact on data. Forward-looking sentiment surveys like March’s ISM manufacturing report could provide some indication. The headline index slowed from 54.2 in February to 51.3 although this level indicates that the manufacturing sector continued to expand. Indexes for new orders and production, while still on an increasing bent, did fall back markedly. This was a rather disappointing report for the sector, particularly in the wake of February industrial production accelerating from 0.1% (m-o-m) in January to 0.8%, helped in part by a 0.8% rise in manufacturing. Markit’s PMI for March was upbeat, though, while the automotive sector has shown particular strength recently, and Ford, Chrysler and General Motors have all indicated plans to either expand output or hire more workers. Our panel’s forecast for 2013 industrial production has jumped from 2.5% last month to 3.0%. Business investment, meanwhile, has been upgraded from 4.6% to 5.1% this month. One industry which has shown solid improvement over the past year has been the residential sector. Indeed, residential investment hit 17.6% (q-o-q annualized) in Q4 2012 following a not-inconsequential 13.5% jump in Q3. Early indications for 2013 suggest that housing starts remain firm, increasing by 0.92mn units in February following 0.91mn in January and 0.98mn in December. While new home sales did decline slightly in February, existing home sales rose by 0.8% (m-o-m), all of which underscores the gradual recovery in the housing market after more than four years of deep retrenchment. This will hopefully help to support personal consumption which has been hit by fiscal tightening this year. While disposable income took a hit in January, February retail sales saw a 1.1% (m-o-m) surge. Consumption forecasts have improved, even though March’s labor report showed the pace in jobs growth slowing.

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