US: Q1 GDP points to steady momentum – Nomura

Analysts at Nomura note that the advance estimate of US Q1 real GDP came in at 2.3% q-o-q saar, modestly above their and market expectations (Nomura and Consensus: 2.0%).

Key Quotes

“Although the pace of growth was slower than in Q4, which was boosted by hurricane recovery activity, growth remained firm in Q1, consistent with labor market and sentiment data for the quarter. Moreover, a firm contribution from business fixed investment in Q1 appears positive for activity in coming quarters, in addition to tax policy changes and healthy global demand. Latest GDP report does not change our view for 2018. We continue to expect strong growth in 2018 boosted especially by fiscal policy.”

“Q1 ECI suggests modest acceleration of wages

The employment cost index (ECI) rose 0.8% q-o-q (2.7% y-o-y) in Q1, from a 0.6% q-o-q (2.6% q-o-q) increase in Q4 (Nomura and Consensus: 0.7%). Growth in wages and salaries accelerated to 0.9% q-o-q (2.7% y-o-y) in Q1 from 0.5% q-o-q (2.5% y-o-y) in Q4. Benefits rose to a 0.7% q-o-q pace from 0.5%, previously. Looking at the 12-month rate of change of the ECI, wage growth suggests only a modest acceleration of wages and remains below its average in the previous cycle. This appears consistent with an economy operating at or beyond full employment, but with a relatively "flat" Phillips curve. This implies that additional inflationary pressures from a reduction in labor market slack are likely to be only moderate.”