30 Apr 2015
Expected US Q2 GDP rebound likely to be smaller - DB
FXStreet (Barcelona) - Q1 real GDP growth was reported at just 0.2%, and the mix in output was such that only a relatively modest rebound in growth should be expected in the current quarter, note Economists at Deutsche Bank.
Key Quotes
"Energy-related capital spending (capex) fell nearly 49% at an annualized rate, enough to subtract 60 basis points (bps) from Q1 output growth. At the same time, net exports deducted 125 bps from measured economic activity.”
“The weakness in energy-related capex is likely to persist into this quarter and possibly next, because changes in energy investment lag changes in oil prices, which only began trending higher over the past month.”
“Additionally, the previous strengthening in the dollar has yet to fully exert its influence on net exports. Hence, the international trade sector is likely to continue to weigh on the economy, although probably not by as much as it did in Q1, when the West Coast port slowdown was another adverse factor impacting the economy.”
“Regarding the labor cost backdrop, there is little evidence that wage pressures are accelerating in any meaningful way. Average hourly earnings have consistently hovered around 2% for the past few years, and with little sign of an imminent breakout, there is no reason to expect the broader Employment Cost Index (ECI) to accelerate either. If the ECI increases 0.6% this would have the effect of raising the year-over-year rate to just 2.5%—well below the 3.5% average in the last cycle.”
“While we expect labor cost pressures to surface later this year, the labor market will likely have to tighten a bit further.”
Key Quotes
"Energy-related capital spending (capex) fell nearly 49% at an annualized rate, enough to subtract 60 basis points (bps) from Q1 output growth. At the same time, net exports deducted 125 bps from measured economic activity.”
“The weakness in energy-related capex is likely to persist into this quarter and possibly next, because changes in energy investment lag changes in oil prices, which only began trending higher over the past month.”
“Additionally, the previous strengthening in the dollar has yet to fully exert its influence on net exports. Hence, the international trade sector is likely to continue to weigh on the economy, although probably not by as much as it did in Q1, when the West Coast port slowdown was another adverse factor impacting the economy.”
“Regarding the labor cost backdrop, there is little evidence that wage pressures are accelerating in any meaningful way. Average hourly earnings have consistently hovered around 2% for the past few years, and with little sign of an imminent breakout, there is no reason to expect the broader Employment Cost Index (ECI) to accelerate either. If the ECI increases 0.6% this would have the effect of raising the year-over-year rate to just 2.5%—well below the 3.5% average in the last cycle.”
“While we expect labor cost pressures to surface later this year, the labor market will likely have to tighten a bit further.”