Summary: US GDP up 1.6% in March quarter; personal consumption the key driver; recovery “well established”, double digit growth “not unrealistic expectation for Q2”; inventory change drags on result; supply disruptions may be a factor; GDP price deflator annual rate accelerates, nearly 2% per annum.
US GDP growth slowed in the second quarter of 2019 before stabilising at about 0.5% per quarter. At the same time, US bond yields suggested future growth rates would be below trend. The US Fed agreed and it reduced its federal funds range three times in the second half of 2019. Pandemic restrictions in the June quarter of 2020 sent parts of the US economy into hibernation; the lifting of those same restrictions sparked a rapid recovery. Growth rates now appear to be reverting to more normal levels.
The US Bureau of Economic Analysis has now released March quarter “advance” GDP estimates and they indicate the US economy expanded by 1.6% or at an annualised growth rate of 6.4%. The figure was largely in line with the +1.6% (+6.5% annualised) which had been generally expected but higher than the December quarter’s 1.1% expansion.
“Personal consumption was the key driver of growth…supported by government stimulus payments and the broader recovery,” said Westpac economist Lochlan Halloway.
US GDP numbers are published in a manner which is different to most other countries; quarterly figures are compounded to give an annualised figure. In countries such as Australia and the UK, an annual figure is calculated by taking the latest number and comparing it with the figure from the same period in the previous year. The diagram above shows US GDP once it has been expressed in the normal manner, as well as the annualised figure.
US Treasury bond yields moved in a somewhat haphazard fashion on the day. By the end of it, the 2-year Treasury bond yield had slipped 1bp to 0.15%, the 10-year had gained 2bps to 1.64% while the 30-year yield finished unchanged at 2.30%.
In terms of US Fed policy, expectations of any change in the federal funds rate over the next 12 months remained largely stable. Federal funds futures contracts for April 2022 implied an effective federal funds rate of 0.11%, a few basis points above the current spot rate.