US: Growth in real GDP looks poised to reaccelerate to around 3% in Q2 - RBS

Research Team at RBS, suggests that after a soft Q1, the growth in real GDP looks poised to reaccelerate to around 3% in Q2, supported largely by a pickup in consumer spending, ongoing strength in housing, and a positive contribution from trade (for the first time in a year).

Key Quotes

“The reacceleration in consumer spending is consistent with ongoing solid fundamentals in the household sector. Indeed, aggregate wages and salaries are growing by better than 3% on a year/year basis (in inflation-adjusted terms) and the savings rate (5.4% in April) is well above the level (closer to 3-1/4%) that would be implied by the historical relationship between the saving rate and household wealth. Households have plenty of firepower to keep spending, as long as their confidence in the US outlook remains intact.

In contrast to the consumer sector, however, the corporate sector has been a source of concern. Increased uncertainty over the global outlook and the US Presidential elections has hurt business investment. The unexpectedly soft May jobs report may be another reflection of increased business caution.

In the wake of Brexit, we expect continued weak business spending (and hiring), with some spillover to the consumer sector. The likelihood of weaker global growth and a stronger US dollar also suggests lower exports and a somewhat larger drag from trade. Thus, our 2016 (Q4/Q4) real growth estimate has been trimmed to 2% from 2.1%. In 2017, our real GDP forecast was shaved by around 1/4 percentage point, from 2.6% to around 2-1/4%.”