Daily Insight
Group Economics Macro & Financial Markets Research
2 February 2016
US economy in a soft patch
US economy in a soft patch…
Senior Economist
…but US GDP growth should pick up in the first quarter
Tel: +31 20 343 5618
However, risks to US economy tilted to the downside
maritza.cabezas@nl.abnamro.com
World manufacturing remains subdued
Maritza Cabezas
Nick Kounis Head of Macro and Financial Markets Research
US economy in a soft patch… US GDP growth has been slowing over the past couple of quarters. Indeed, the
Tel: +31 20 343 5616
economy seems to be in a soft patch. The advance estimate of Q4 GDP came in at
nick.kounis @nl.abnamro.com
0.7%. Most major components were weak, particularly the contribution of fixed investment continued to decline. On top of this the sharp drop of December’s orders and shipments of durable goods suggest that this weakness could continue in the coming months, as a result of the collapse in oil prices and the stronger US dollar. …but US GDP growth should pick up in the first quarter Our forecast of Q1 GDP growth is still somewhat firmer though, at 1.8%. Consumer confidence reports continue to trend up and housing market data are signalling modest growth. Moreover, we think that the job gains in January will be sustained at decent levels (180K), giving support to consumption growth. However, we expect January’s job gains to be substantially lower in Friday’s report compared to the 275K reported in December. Part of the slowdown in hiring in January will likely be the result of less temporary workers being hired. Q4 GDP growth most major components weak %-pts contribution
Energy investment still a drag % qoq ar
6
0.4
4
0.2
2
0
0
-0.2
-2
level
140 120 100 80 60 40 20 0
-0.4
-4 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015
-0.6 08
09
10
11
12
13
14
15
16
Consumption
Investment
Government
Investment in mining contribution to GDP (lhs)
Inventory
Net trade
GDP growth
Oil prices (rhs)
Source: Thomson Reuters Datstream
Source: Thomson Reuters Datastream
Insights.abnamro.nl/en
2
Daily Insight – US economy in a soft patch – 2 February 2016
Risks to US economy tilted to the downside We see some downside risks to our Q1 GDP growth forecast. We think that the low oil prices at the beginning of this year and the instability in financial markets, which resulted in a sell-off in the US equity market will impact financial conditions in the US. If oil prices remain low and the US dollar continues to appreciate at a similar pace as in 2015, this could put further downward pressure on manufacturing and energy related activities. Given the duration of the contraction in these sectors, it is possible that the impact could spill over to the broader economy. Will financial conditions in the US tighten further? Index, %
8 6 tightening
4 2 0 -2 -4 -6 91
93
95
98
00
03
Financial conditions index
05
07
10
12
15
GDP growth
Source: Thomson Reuters Datastream, ABN AMRO
World manufacturing subdued Global economic growth remained lacklustre at the start of this year. The world manufacturing PMI did edge up in January, to 50.9 from 50.7, but the index remains at very low levels. The aggregate indices for both developed and emerging markets both rose modestly. However, while the former index remains above its historical average, the latter is comfortably below it, signalling that emerging market growth remains particularly subdued. Indeed, from the BRIC economies, only India’s PMI is above the 50-mark associated with healthy growth. Meanwhile, among the advanced economies, there was some convergence in the PMIs, with the eurozone and Japan slowing and the US and UK catching up. The level of the PMI for these economies is now similar and consistent with modest economic growth. Weak global growth reflects major challenges in a number of key emerging markets (Brazil, Russia and China) the collapse in oil prices, which is currently hurting producers more than it is boosting consumers, and tighter financial conditions. Over time we expect global growth to gradually firm. Central banks are stepping up their reflation efforts, while the drag from oil prices should fade. These factors should also support market sentiment. Domestic fundamentals in the US and eurozone have been steadily improving. Having said all this, risks for the global economy also remain clearly tilted to the downside.
3
Daily Insight – US economy in a soft patch – 2 February 2016
Day
Date
Time
Country
Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday Monday
01/02/2016 01/02/2016 01/02/2016 01/02/2016 01/02/2016 01/02/2016 01/02/2016 01/02/2016 01/02/2016 01/02/2016 01/02/2016
02:00:00 02:00:00 02:45:00 09:00:00 10:30:00 14:30:00 14:30:00 15:45:00 16:00:00 19:00:00
CN CN CN NL EC GB US US US US US
Tuesday Tuesday Tuesday Tuesday
02/02/2016 02/02/2016 02/02/2016 02/02/2016
06:30:00 09:55:00 09:55:00 11:00:00
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
03/02/2016 03/02/2016 03/02/2016 03/02/2016 03/02/2016 03/02/2016 03/02/2016 03/02/2016 03/02/2016
02:45:00 02:45:00 10:00:00
Period
Latest outcome
Consensus
PMI manufacturing - index (official) PMI non-manufacturing - index (official) PMI manufacturing - index (Caixin) PMI manufacturing - index PMI manufacturing - index PMI manufacturing - index PCE deflator core - % mom PCE deflator core - % yoy Markit - Flash PMI ISM manufacturing - index Fed's Vice-Chair Fischer speaks on economy and policy
Jan Jan Jan Jan Jan F Jan Dec Dec Jan F Jan
49.4 53.5 48.4 52.4 52.3 52.9 0.00 1.4 52.4 48.2
49.6
IN DE DE EC
Repo rate - % Unemployment - % Unemployment change - thousands Unemployment - %
Feb 2 Jan Jan Dec
6.75 6.3 -14.0 10.50
CN CN EC EC GB EC US US PL
PMI services - index (Caixin) PMI composite - index (Caixin) PMI services - index Composite PMI output PMI services - index Retail sales - % mom ADP nat. employment report - thousands ISM non-manufacturing, index Reference rate - %
Dec Dec Jan F Jan F Jan Dec Jan Jan Feb 3
50.2 49.4 53.6 53.5 55.5 -0.3 256.9 55.3 1.5
Thursday Thursday Thursday Thursday Thursday
04/02/2016 04/02/2016 04/02/2016 04/02/2016 04/02/2016
13:00:00 13:00:00 13:00:00 14:30:00 20:00:00
GB GB CZ US MX
Policy rate - % BoE size of asset purchase programme - GBP bn Repo rate - % Output per hour nonfarm business sector - % qoq Policy rate - %
Feb 4 Feb Feb 4 4Q P Feb 4
0.5 375.0 0.1 2.2 3.3
0.5 375.0
Friday Friday Friday Friday Friday Friday Friday
05/02/2016 05/02/2016 05/02/2016 05/02/2016 05/02/2016 05/02/2016 05/02/2016
08:00:00 09:00:00 14:30:00 14:30:00 14:30:00 14:30:00 21:00:00
DE CH US US US US US
Manufacturing orders - % mom Foreign currency reserves - CHF mln Change in employment private employment - thousands Change in employment total - thousands Unemployment - % Trade balance - USD bn Fed Reserve consumer credit - USD bn
Dec Jan Jan Jan Jan Dec Dec
1.5 559682 275 292 5.0 -42.4 14.0
-0.2
-1.0
199 204 5.0 -42.5 14.8
180 190 5.0
10:30:00 11:00:00 14:15:00 16:00:00
Key Economic Indicators and Events
ABN AMRO
48.1 53.2 52.3 51.8 0.11 1.4 48.4
48.0
6.75 6.3 -7.3 10.50
6.75
53.6 53.5 55.4 0.3 199.9 55.2
0.5 180 55.0
-1.4
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
Find out more about Group Economics at: https://insights.abnamro.nl/en/
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