US: Growth story remains mixed amidst revised up GDP - ING

James Knightley, Senior Economist at ING, explains that US GDP for 1Q17 is now 1.2%, better than initially reported, but still poor relative to the majority of other developed markets while the Fed still views this as "transitory", but the data isn't wholly convincing.

Key Quotes

“US 1Q17 GDP growth has been revised up to 1.2% annualised from the 0.7% figure initially reported. There were slight improvements in all of the key components, but it is still a very disappointing outcome, mainly caused by a clear slowdown in consumer spending and a run down in inventories.”

“The Federal Reserve remains of the view that this softer growth period is “transitory”, but the high frequency numbers for the second quarter are not exactly pointing to a huge rebound. Indeed, today’s durable goods report wasn’t particularly encouraging for investment given the non-defence capital goods orders (ex aircraft) missed heavily on the downside. The fall in 1Q GDP quarterly profits isn’t exactly a positive for investment spending either.”

“The next key release ahead of the FOMC meeting is Friday’s payrolls report and it too is unlikely to provide convincing evidence that the Fed will definitely hike rates on June 14. Subdued 1Q activity and soft profits may have made companies less inclined to hire aggressively. Also note that working day effects are likely to depress wage growth (23 working days in April versus 20 in April). Nonetheless, given the comments from Fed officials, we are going to see fairly big misses on the downside to deter them from hiking.”