Growth entered what has become a compulsory slowdown in the first part of the year, this time due to household consumption. The prospects of a rebound are real, but limited, which means the year 2017 could prove to be disappointing. In the months ahead, the risks are concentrated in the housing market, which is showing the first signs of reacting to higher mortgage rates. Even so, the Fed continues to normalise monetary policy, after outlining the next steps for unwinding its balance sheet, albeit without specifying a timetable. And for good reason: it must make a conclusive analysis of the fundamental causes of the current slowdown in inflation.
The “first-quarter curse” has struck again: US growth dropped to an annualised quarterly rate of 1.4% in early 2017, from an average of 2.8% in the second half of 2016. This time the main culprit behind the slowdown was household consumption, which slowed to 1.1% in early 2017, from 3.5% in late 2016. At the same time, nonresidential investment finally rebounded (+10.4%) after three quarters of sluggish growth (1.1% on average), even though it followed six months of decline.
■ All is well when construction goes well
Activity certainly accelerated in the second quarter of 2017, although not necessarily at a very dynamic pace. The Atlanta Fed’s nowcasting model is projecting an annualised quarterly growth of 3%, a “credible” performance in the light of monthly data for private consumption. Business investment surely did not repeat its first quarter performance, but probably continued to grow, while the inventory change, after making a very negative contribution to growth, probably swung back into positive territory.
The biggest uncertainty surrounds residential investment. Home sales as a whole have peaked, while according to the National Association of Home Builders’ index, prospects have been hit by higher mortgage rates, which have increased by about 50 basis points since last November’s elections. This upturn is relatively mild compared to the one that followed the so-called taper tantrum1, after which home sales declined by about 8%2.
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by Alexandra ESTIOT