USA: Sentiment high among consumers, but lack of clarity in economic policy

Although the new US president has now been in office for two months, there is as yet no clarity on the economic policy that will strongly influence the US economic cycle and thus also the global economy in the coming years. The attempt to reform Obamacare “on the fly” illustrated, unsurprisingly, a lack of unity between the president and the Republican Party. Moreover, it emerged once again how deep the divides are within his own party. We continue to think that the Trump administration will approve measures to stimulate the economy, although these will probably lag far behind what was promised during the election campaign. Much will depend on the extent to which the Republicans actually rally behind “their” president’s plans.

Also because a further pumping up of government debt is contrary to the fundamental attitude of the Republicans in Congress, the volume of the spending programmes or tax breaks is likely to remain limited. Possible fiscal measures cannot come into force until the beginning of the new fiscal year anyway, meaning 1 October of this year. Should it emerge in the coming weeks, also with regard to other topics such as the promised reform of corporation tax, that a political consensus is hardly possible, economic sentiment may dim sharply. It is very hard to gauge what the resulting strain on the economy will be.

In recent months, specifically in manufacturing and among consumers confidence has been very great, as is shown by the survey figures. However, this brightening of sentiment is presumably driven not only by Donald Trump’s election promises, but also by the ongoing good labour market situation and the higher number of new orders in industry. In March the Conference Board consumer climate index reached the highest figure since December 2000 and thus an outstanding record high.

Even if of late the trend for consumer spending has been somewhat subdued, we expect that the strong momentum in job creation in recent months and the robust development in the prior period will spur the willingness to make purchases. In the first two months of this year alone the number of employees has risen by almost half a million. This very positive trend was above all possible because in addition to the customary job engine – the service sector – manufacturing has also boosted its number of employees. Evidently here the trend has changed, and things are now also driven by manufacturing and the construction industry. This slight boost has at any rate sufficed to absorb the persisting influx of job-seekers from the hidden labour reserve into the job market and further reduce the rate of unemployment.

In part, job creation in manufacturing has possibly been supported by the expectation of financial relief or infrastructure measures. The key booster will probably have been improved order books and the ongoing high number of building approvals, which climbed even further in recent months. Thus, new orders received by manufacturing have risen steadily since the middle of last year, following roughly 18 months of dwindling order receipts. Positive stimuli are being provided by the almost stable price of oil, which at a figure of about USD 50 per barrel is at a tolerable level for the US fracking industry. Associated industries are benefiting from this, in particular commercial construction. Other favourable effects should include the multi-billion expansion of the “Keystone XL” oil pipeline that has now been approved by the president and the corresponding ministries after having been on ice for years.

Despite all the above positive factors underpinning the economy, according to data available so far the US economy once again only grew modestly at the beginning of the year. The March data should already reveal a faster economic pace, however, meaning that in the coming quarters economic growth looks set to be slightly above two percent. In the final quarter, increased government spending and/or tax breaks should have a mild effect boosting growth, so that the economic momentum is likely to pick up slightly. We continue to expect economic growth to average 2.2 percent in the current year. The negative impact of foreign trade will probably be larger than in the prior year owing to strong importing activities and could thus rekindle the debate in the USA on protectionist measures.

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