US Q1 Growth Beats Forecasts

The rate of growth in the US economy has picked up in the first quarter of the year, coming in at 3.2%, up from 2.3% in Q4 2018. The Americans always quote quarterly growth on an annualised basis, in contrast to how it is measured in Europe.

The data was boosted by some businesses deciding to hold a higher inventory of stock (which only makes sense if you expect that supplies may be harder to come by in the future). This has led some analysts to suspect that the hike in the rate of expansion of the economy may be unsustainable. Still, that did not prevent Wilbur Ross, US Secretary of Commerce from making political capital from the current set of numbers: "The Trump economy has repeatedly defied the sceptics who predicted an economic downturn and has restored America's position in the world as a consistent source of economic growth."

The data was helped by stronger export activity in Q1 whilst levels of imports into the USA fell back. The stockpiling by US businesses seen was the highest since Q2 2015, but comes against a backdrop of slowing global economic activity, fuelled, in part, by tensions caused by US trade policies.

Great trade opportunities are waiting. Don't miss it!
TRADE NOW

On the negative side of the balance sheet, consumer spending slowed from Q4 2018 to Q1 2019 from 2.5% growth to 1.2% growth. Domestic demand accounts for approximately 70% of all US output.

Some analysts have pointed out that government spending on infrastructure (highways and smaller roads, mainly) has flattered economic activity in Q1 and that if this impetus is removed from the data GDP would only have managed a 1% annualised increase.

Opinion is divided on what the data means for the direction of travel of the Fed’s interest rate policy. Doves think that sustained growth will lead to wage inflation on a backdrop of near full employment which may fuel general inflation, warranting a rate hike. The Bulls think that growth is overstated and will struggle to advance, making it more likely that the Fed may cut rates towards the end of the year. As the French would say: on verra!

Dr. Mike Campbell is a British scientist and freelance writer. Mike got his doctorate in Ghent, Belgium and has worked in Belgium, France, Monaco and Austria since leaving the UK. As a writer, he specialises in business, science, medicine and environmental subjects.