U.S. economy likely to expand around 2.2 pct in 2017, inflation to average 2.2 pct – Lloyds Bank

The upswing in the U.S. economy has been in place since mid-2009 and the jobless rate has dropped to a new post-crisis low of 4.3 percent. Annualized growth in the first quarter was weak at 1.2 percent, upwardly revised from the advanced reading of 0.7 percent. In the second quarter, a rebound of about 3 percent is expected, aided by a recovery in the contribution to growth from inventories and solid consumer spending growth, noted Lloyds Bank in a research report. Consumer sentiment continues to be at historically high levels, whereas employment growth is underpinning incomes.

The labor market continues to tighten in the U.S. Nonfarm payrolls rose by 138,000 in May, although less than expected. Wage growth continues to be relatively contained, but while broader inflationary pressures have weakened unexpectedly in recent months. Annual growth in hourly earnings remained at 2.5 percent in May, while annual CPI dropped to 1.9 percent, as compared with 2.8 percent just three months earlier. The decline in headline CPI inflation has not been mainly due to energy prices. Core CPI has also dropped in recent months and is currently at a two-year low of 1.7 percent.

“We expect full-year growth to be around 2.2 percent, up from 1.6 percent in 2016”, said Lloyds Bank.

Meanwhile, the U.S. economy is expected to grow 2.5 percent next year, with some fiscal stimulus measures assumed from next year, although there is significant uncertainty about whether pro-growth measures would be implemented. Therefore, the risk to the 2018 growth forecast is possibly more to the downside than upside.

“We also forecast CPI inflation to average 2.2 percent this year, although this is down from our previous projection of 2.4 percent”, added Lloyds Bank.

At 15:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -67.1095. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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