US economic activity expected toreaccelerate firmly in 2011
Source: US BEA, Macquarie Research, December 2010
While monetary conditions shouldremain very loose for some time yet
Source: Datastream, Macquarie Research, December2010
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14 December 2010
US Macqro Outlook
We consider the outlook for the US economy in 2011.
Following a temporary soft patch in US economic activity in 2H10, US growth isset to accelerate in 2011. We expect momentum is firm heading into the NewYear, and combined with pro-growth monetary and fiscal policy, we look forabove-trend growth.
Robust household spending, capital investment and also export growth drive ouroutlook. At the same time, housing should remain the laggard.
With inflation expectations on the rise and excess capacity expected to shrink, welook for inflationary pressures to increase. Combined with buoyant market growthexpectations, we also expect rising long-term bond yields, though these shouldnot constrain economic growth.
2011 is shaping up to be a firm year for the US economy. Activity slowed into asoft patch in mid-2010, in line with our expectations, with the post-crisismanufacturing and inventory rebound easing and imports dragging strongly ongrowth. However, it defied widespread forecasts for a double-dip that emergedearly in 2H10, with GDP growth improving from 1.7% in 2Q10 to 2.5% in 3Q10.
In fact, this has proven to be a tame mid-cycle deceleration by many accounts.The ISM manufacturing index is a key example. The index is sitting at a levelconsistent with above-trend US growth and is expected to soon bottom out at areading above 50.0, which would be a very high level for a trough. Personalincomes and spending have also held up firmly, achieving their best rate of growthsince before the financial crisis in recent months.
This leaves activity at an impressive starting point for the next stage in the cycle.We expect an economic upswing is set to emerge from 4Q10, with recent datapoints suggesting activity is likely ready to reaccelerate.
For example, leading indicators suggest that a turning point for growth has beenreached. The three- and six-month rates of change in the Conference Boardleading index have both rebounded. And the encouraging trend in the initial jobless claims data and core retail sales growth suggest positive momentum inthe US economy seems to be increasing.
From recovery to expansion ...
We expect the reacceleration could prove quite rapid. US GDP growth is forecastto push incrementally higher in the next few quarters, reaching a pace above its3% trend rate by 2Q11. With growth expected to maintain an above-trend pacethrough 2011, we forecast real US GDP growth of 3.5% for the year.
-4.0-3.0-2.0-1.00.01.02.03.04.01Q2008A1Q2009A1Q2010A1Q2011EReal US GDP
QuarterlyAnnual Avg. % Chg
0.000.501.001.502.002.501Q2008A1Q2009A1Q2010A1Q2011E1Q2012EFed funds rate
This report was prepared by Macquarie Capital Markets Canada Ltd and is being distributed by Macquarie Private Wealth Inc. Macquarie Private Wealth Inc and Macquarie Capital Markets Canada Ltdare separate affiliated corporate entities that are part of the Macquarie group of companies. Please refer to the important disclosures and analyst certification on the inside back cover of this document.