US economy likely to expand at annualized rate of about 2.5 pct in Q2

In the January to March period of 2016, the US economic growth decelerated to an annualized rate of just 0.5% in the advanced estimate. This was below the consensus projections of 0.7%. The Q1 data shows softening of consumer spending growth and a fall in net exports and business investment. This is in contrary to further buoyant growth in employment in Q1 that averaged more than 200,000 per month. This contrast might be partially because of soft growth in productivity; however, this might also show problems with the seasonal adjustment, resulting in an under-recording of Q1 output growth, said Lloyds Bank in a research note.

The US Fed policymakers will focus more on if the economic growth recovers in the second quarter. The nonmanufacturing ISM survey climbed to 55.7 from 54.5 last month. This was the second straight monthly gain; however, the manufacturing ISM dropped from 51.8 to 50.8. Both the Conference Board and University of Michigan’s surveys indicated that consumer confidence alleviated.

Meanwhile, the growth pace of employment slowed to a 160,000 in April; however, there are indications that growth in hourly earnings might have recovered. The jobless rate is at 5%, close to an eight-year low.

“We currently look for annualised growth of around 2.5% in Q2. For 2016 as a whole, our growth forecast has been revised down marginally to 2.1% from 2.2%”, added Lloyds Bank.