US growth is likely to moderate in the December quarter - NAB

Tony Kelly, Senior Economist at NAB, notes that the US economy remains on a solid footing, although growth is likely to moderate in the December quarter.

Key Quotes

“After the large fall in the unemployment rate in November, the Fed looks set to raise the feds fund rate this month. We have incorporated an allowance for fiscal stimulus starting in the second half of 2017, leading to an increase in our 2018 GDP growth forecast.”

“The Bureau of Economic Analysis revised up its estimate of Q3 GDP growth from 2.9% qoq (annualised) to 3.2%. This was the strongest growth rate in two years, although it came after several weak quarters. Partial indicators for 2016 Q4 are currently pointing to a more modest, but still reasonable, growth rate in the December quarter.”

“As a result our forecast for 2017 GDP growth is unchanged at 2.1% - with the rates/dollar affects holding down growth earlier in the year and also offsetting some of the initial impacts of the fiscal stimulus. However, we now expect 2018 GDP growth of 2.3% (1.9% previously). The low impact of the stimulus (less than 1 for 1) reflects the stage of the economic cycle – unemployment is low and so the capacity for rapid growth is limited. With inflation nearing the Fed’s target, if the US dollar doesn’t rise in response as we expect, then the Fed would likely undertake a faster pace of rate tightening to ensure inflation remains under control; one way or another financial conditions will moderate the impact of any fiscal stimulus.”