US Q1 real GDP revised higher than expectations, Fed may hike rates by 25bps in summer

According to US Bureau of Economic Analysis’ second estimate, the real GDP of the US grew at an annualized rate of 0.8%, as compared with the initial estimate of a growth of 0.5%. Consensus projection was for a growth of 0.9%. The GDP growth was revised upwardly as a drag from net exports and inventory investment was smaller than previously estimated, whereas residential investment contributed more to growth as compared to the initial estimate.

There were little changes in other components. PCE growth, especially, was not significantly revised, as the upward revision in goods spending was countered by smaller outlays on services. Investment in structures also declined below expectations; however, the rebound was offset by a weaker investment in equipment & software, and also IPP.

The second estimate GDP growth report confirms that the US economic growth was not as bad as reported earlier in the beginning of 2016. Several revisions were on par with expectations, said TD Economics in a research report. The major drawback in the report was the growth in consumption that was unrevised at 1.9%, in contrast to the projections of a stronger growth related to the upward revision of retail sales data.

In all, the report does not alter the view of the US monetary policy and economic outlook, added TD Economics. Most of the recent recoveries in the data have been evident from the start of April. At present, the tracking of Q2 growth is at around 2.4%, noted TD Economics. If there is a continuation in the upbeat trends witnessed in April into the second quarter, it will confirm that the growth continues to accelerate.

With certain evidence of wage pressures and increase price, it might push the US Fed to raise interest rates by further 25bps in this summer, according to TD Economics. There is a higher possibility of Fed raising rates in July or September; however, a June hike is not out of question, added TD Economics.