The US economic growth decelerated in the first quarter of 2016. It slowed to 0.5% from Q4 2015’s 1.4%, as compared with consensus projection of 0.6% growth and Nordea Bank’s forecast of 0.8% growth. This was the slowest quarterly rate since Q1 2014. On a year-on-year basis, the economy grew 1.9%, as compared with 2% growth seen in Q4 2015. This pace is still more than the US economy’s estimated present potential rate of about 1.5% annually, noted Nordea Bank.
The slowdown in economic growth in the first quarter was mainly due to major drags from net exports and inventories, contraction in business investments and deceleration in consumer spending. Business investments contraction was partially due to the energy sector, said Nordea Bank.
The deceleration of Q1 economic growth should not be extrapolated, according to Nordea Bank. The slowdown is expected to be just a temporary weak patch and not a serious downturn. The US economy is projected to pick-up in the second quarter, added Nordea Bank.
The GDP data, seasonally adjusted, is expected to be more favorable in the second quarter as compared to the first quarter. Furthermore, the economic growth in Q2 is expected to be much stronger, based on recent indicators, noted Nordea Bank. Income and employment growth continued to be solid, while business surveys have improved in the past few months. Meanwhile, the four-week average of initial jobless claims dropped to at 256k.
“We stick to our forecast that the US economy will expand by close to 2% in 2016”, said Nordea Bank.
In the first quarter, core inflation pressures bolstered in the US. Core PCE prices were up 2.1%, pushing up the y/y rate to 1.7% from Q4 2015’s 1.4%. Given that the underlying inflation pressures are strengthening, the US economy seems to be reaching full employment, added Nordea Bank.
