US: Expect a solid bounce back in Q2 GDP – Wells Fargo

Analysts at Wells Fargo view US Q1 weakness as transitory and expect a solid bounce back in Q2.  

Key Quotes

“Real GDP grew at a modest 1.2 percent annualized rate in Q1 and is up 2.0 percent year over year. Much of the weakness was from a slowdown in consumer spending growth and a sizeable inventory drag. Warmer weather pulled the homebuilding and buying season forward, which added to growth.”

“Labor market growth has slowed to a  121,000 three-month moving average in May. Job growth is broad based across sectors, with only information posting a decline. Despite steady job growth, earnings have yet to break two-percent. Softer inflation is more than likely weighing on nominal wage growth. The jobless rate is at a new cycle low of 4.3 percent, while the labor force participation rate remains below rates seen over the past two decades.”

“Headline and core inflation have been decelerating in recent months, raising concerns over the likelihood of reaching the Fed’s 2.0 percent target. The primary driver of overall lower inflation has been a decline in energy prices, while food prices have modestly increased. Core inflation remains tame, despite rising shelter costs.”

“At the FOMC’s June meeting, the committee raised its fed funds rate by one-quarter percentage point to 1.25 percent. Fed policymakers also outlined plans to normalize its balance sheet, which is expected to start this year, but left off a definite end date.”