According to the Atlanta Federal Reserve's latest GDPNow estimate for Q1 2023, US growth has remained high (2.5% on an annualised quarterly basis). The pace is almost identical to that of Q4 2022 (2.6%), as if growth was impervious to the inflationary shock and the significant monetary tightening undertaken to address it. During the first quarter, however, the GDPNow estimate changed significantly, starting from around 4% at the beginning of January before weakening to 0.7% at the end of the month, then fluctuating within a range of 1.5- 3.5% to reach 2.5% in mid-April. This GDPNow estimate is not, however, immune to substantial forecasting errors. Our growth forecast for Q1 is close to this (0.6% q/q), but we cannot rule out a surprise on 27 April, when the BEA figures are published.
United States: Economic indicators quarterly changes
Furthermore, the economic review of data available for March is mixed. According to the ISM indices, the business climate in the manufacturing sector deteriorated further in quite a significant manner (-1.4 points, to 46.3), and in the non-manufacturing sector, it also fell (-3.9 points, to 51.2 points). But S&P Global’s PMI index looks more positive, for the manufacturing sector (+1.9 points, at 49.2 points) and services (+2 points, at 52.6 points). The message is no clearer for household confidence, which fell sharply in March according to the University of Michigan, but the Conference Board index improved slightly.
These divergent signs are perhaps the start of a downward turn, a prelude to the US economy's entry into recession, which we expect for Q3 2023 and has also (clearly) been signalled for several months by the Conference Board’s composite leading indicator. For the time being, although the economy is slowing down, it is doing so gradually, particularly in view of the slow puncture in the labour market[1].
GDP Growth
In March, inflation looked as if it were falling more quickly, with the marked drop in the headline rate (-1 point, to 5% year-on-year). This impression is misleading, however, as core inflation rose slightly (+0.1 points, to 5.6% year-on-year): so, its decline is yet fully underway. The shelter component alone contributes to just over half of headline inflation. Combined with the still tight labour market, we believe that the US Federal Reserve will continue its monetary tightening with a new – and final – 25 bps hike in the Fed Funds rate at the beginning of May.
Hélène Baudchon (article completed on 20/04/2023)
