US: Q2 Weakness Appears Likely

Consensus Forecasts

The second GDP release for Q1 saw a modest downgrade from 2.5% (q-o-q annualized) in the advance report to 2.4%. Most of our panellists’ forecasts for 2013 activity have barely changed this month. The national accounts did, however, reveal larger-than-expected revisions to the underlying data. Inventories contributed less to the economy than initially reported, while the drag from both net exports and government spending widened. Elsewhere, after a 0.3% (m-o-m) gain in March, industrial production contracted by 0.5% in April, squeezed by a weather-related 3.7% collapse in utilities output and 0.4% fall in manufacturing. New factory orders did manage a 1% rise during the same month, but this was less than some observers had been predicting and follows March’s deep 4.7% decline. Still, a 3.5% monthly surge in durable orders bodes well. Looking ahead, May’s ISM survey of manufacturing pointed to a struggling sector. The PMI slipped to 49.0 while new orders and production indicators dropped even more noticeably.

Personal consumption rose by 3.4% (q-o-q annualized) in Q1 from a 1.8% gain in Q4 2012, despite tax rises that quarter. The fiscal drag is set to continue following public spending cuts which came into effect in March. Still, consumer sentiment has been buoyed by a 175,000 gain in May payrolls following April’s 165,000 increase. Moreover, the housing market continues to prosper. All this has helped to lift consensus projections for consumption this month. Meanwhile, the Fed’s recent suggestion that it is looking to “taper” the current pace of asset purchases has sent the world financial and currency markets into a flurry, even though it is unclear whether this means outright monetary tightening.

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