U.S. economic growth to rebound to around 3 pct in Q2, inflation to average 2.4 pct in 2017

In the first quarter, the U.S. economic growth decelerated to just 0.7 percent from the prior quarter’s 2.1 percent. The slowdown was mainly driven by a subdued pace of consumer spending growth. Still, business surveys and labor market indicators continue to indicate underlying rate of growth. The manufacturing ISM survey dropped in April to 54.8, but stayed in expansionary territory, while the non-manufacturing ISM rose to 57.5, in line with a strong growth rate.

Meanwhile, non-farm payrolls rose 211k in April, implying that the weak March outturn was transitory, whereas the jobless rate dropped to a new post-crisis low of 4.4 percent. The rise in April retail sales hints at a revival of consumer spending this quarter, stated Lloyds Bank in a research report.

“We expect annualised Q2 GDP growth to rebound to at least 3 percent, with full-year growth forecast at 2.2 percent, up from 1.6 percent in 2016. Growth for 2018 is forecast at 2.5 percent, with some fiscal stimulus measures assumed from next year”, added Lloyds Bank.

However, the rising political storm in the U.S. is raising doubts on whether the Trump administration would be able to push through pro-growth policies. Meanwhile, annual wage growth alleviated to 2.5 percent in April, implying that there might be lingering slack in the labor market, in spite of the low jobless rate. In the meantime, annual headline inflation dropped to 2.2 percent and the core measure eased to 1.9 percent. According to Lloyds Bank, CPI inflation is expected to average 2.4 percent in 2017.