US economic momentum doubled in Q2, welcome increase in capex

It was hardly surprising that the US economy doubled its growth momentum in the second quarter, as evidenced by the latest data released by the Bureau of Economic Analysis. Following a weak start to the year, which was however the result of numerous non-recurring effects, gross domestic product (GDP) increased at an annual rate of 2.6%. Growth was quite broad based, with the strongest stimulus once again coming from private consumption. The economic acceleration in the US was also fuelled almost entirely by strong consumer spending, with only a marked increase in defence expenditure still making a slight contribution to the higher pace of growth. Otherwise, the very positive development of private investment in machinery and equipment is obvious. The latest GDP data confirm our assessment overall that the US economy remains on a stable growth trajectory. The high level of the most important trend barometers also points towards robust growth in the second half-year.

A closer look at the capex figures shows that figures here doubled for the second consecutive quarter, with growth therefore coming in at more than eight percent over the prior quarter. Investment in commercial buildings was also positive. The decline in housing construction was more pronounced than suggested by the data available to date on housing starts. However, the marked growth in the two previous quarters has to be taken into account; growth was actually around 11 percent in the first quarter. The historical high among home builders, as demonstrated by the NAHB index, also implies the fundamental upside trend is intact.

As scheduled, the first estimate for the second quarter coincided this year again with the release of the revised GDP data for the three previous years. Economic growth for both 2014 and 2015 was revised slightly upwards, so that the growth rate for 2015 is now a remarkable 2.9%. However, the slight downward revision of 2016 was somewhat disappointing, with economic growth of only 1.5 percent recorded. This is down to a very weak start to the year, whereas the pace of growth was steadier during the rest of the year in a range of between two and three percent. Our expectations for the current and coming quarters are also within this range. We can therefore conclude that the US Federal Reserve will continue on its course of very moderate monetary policy tightening.

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