While the US has a historically low unemployment rate and strong GDP growth, bond yields suggest growth in the future will be less than what it is now. A rate cut is expected shortly as “insurance” against a softening external sector and the yield curve is flat or inverted depending on which measure one uses. However, quarterly US GDP figures have held up so far.
The US Commerce Department has now released June quarter “advance” GDP estimates and they indicate the US economy grew at an annualised rate of 2.1%. The growth figure was more than the 1.8% median of market estimates but a drop from the March quarter’s revised figure of 3.1%.
US Treasury bond yields slipped a little lower while the odds of a rate cut at the FOMC’s upcoming July meeting did not alter significantly. By the end of the day, 2-year, 10-year and 30-year yields had all slipped 1bp lower to 1.85%, 2.07% and 2.60% respectively. Federal funds futures still implied at least one 25bps rate reduction was coming, with a 25bps cut viewed as a 78% chance and a 50bps cut as a 22% chance.
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 a figure from a year ago. The diagram below shows US GDP once it has been expressed in the normal manner, as well as the annualised figure.