U.S. Outlook Report: The U.S. Economy Moving in the Right Direction
Global equity markets breathed a sigh of relief this week as U.S. economic data showed signs the economy is continuing to grow. The first positive sign came last week, when Q4 2015 real GDP was revised upward to1.0%, and personal income and spending for January increased a better than expected 0.5%. Our forecast for U.S. GDP growth remains at 2.1% for the first quarter of 2016, and we raised our consumer spending forecast a bit to 3.0 percent annualized growth in the first quarter from 2.9 percent previously, based on the solid January gains in income and spending. U.S. manufacturing activity also appears to have stabilized in February. The ISM Manufacturing Index climbed to 49.5 from the January reading of 48.2, the highest since September 2015, though still signaling mild contraction overall.
According to the survey, nine of eighteen manufacturing industries reported growth in February and 12 reported expansion in new orders- a leading indicator of future growth. The growth in new orders should translate into modest production growth in the near future, holding labor demand in the manufacturing sector steady. The production component of the report showed the highest growth reading of 52.8 and is up 2.6 points from January. A reading above 51.3 is generally consistent with an increase in monthly industrial production compiled by the Federal Reserve. Putting it all together, the worst may be over for the U.S. manufacturing sector.
On the services business side, the ISM non-manufacturing index slipped 0.1 points to 53.4 in February; still above 50 expansionary territory, though the lowest reading on this measure in the last 12 months. The business activity sub-component of the release increased 3.9 points to 57.8. Forward-looking new orders are down slightly to (55.5) from January’s (56.5), but still firmly in expansion territory. There was a steep drop in the service sector employment component in February that could foretell somewhat weaker service sector payroll growth ahead.
Another positive is the strength and resilience in U.S. construction spending. The Census Bureau reported an impressive 1.5 percent month-over-month increase in January construction spending to $1.141 trillion, after an upwardly revised 0.6 percent growth rate in December. Gains in public and nonresidential building construction sectors have helped the overall industry to perform well, growing at 13.0 percent and 11.5 percent in the last 12 months. The public sector spending growth over last year was the strongest since November 2007.
Better-than-expected manufacturing and non-manufacturing readings, solid monthly job gains and remarkable growth in the construction sector are sending important signals that U.S. economic growth is on the right track despite the recent volatility in the equity markets, China’s economic slowdown, weak commodity prices and the strong dollar.
To find out more, check out this week’s U.S. Outlook Report.
Tags: economy, employment, federal reserve, GDP