- The US economic slowdown is getting confirmed, with not so encouraging prospects ahead.
- This raises the question of whether it is really the right time to tighten monetary policy again, and of the opportunity to use fiscal policy.
The US economic slowdown has been confirmed, despite the rebound in Q3 GDP (annualised quarterly rate of 2.9%). Given the sluggish performances of the previous three quarters, this rebound must be kept in perspective. Between Q4 2015 and H1 2016, growth was limited to 1%. To offset this weak performance and return to a trend of 2%, it would have taken Q3 GDP growth of 4.9%. As it turns out, growth fell short of this mark by 2 points, bringing the average for the past four quarters to only 1.5%. Moreover, the components of demand were not very encouraging: Q3 growth was mainly fuelled by temporary factors, notably inventory building (+0.6-point contribution to average quarterly growth) and a surge in agricultural exports. Exports of agricultural products alone contributed 0.9 points to Q3 GDP growth.
Final domestic demand actually slowed to +1.4% in Q3 (from +2.4% in Q2), an undeniably poor performance after +2.6% in 2014 and +3.1% in 2015. So far, the slowdown is mainly due to the business sector, which have cutback spending by 4.1% per quarter since early 2016, after an average increase of 4% in 2014-2015. But household consumption – and residential investment – is also showing signs of weakness, and personal income is following an alarming trend. Real disposable income per capita increased only 1.4% year-on-year in September, the slowest pace since 2013, when two points were added to the payroll tax rate. So far, households have chosen to dip into savings (5.7% of disposable income in September, vs. 6.1% in 2015). If the job market’s dynamic momentum is called into question, however, we cannot rule out the risk of an even sharper slowdown in household spending.
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by Alexandra ESTIOT