Incredible forecasts for economic growth in the US and the outlook for inflation and Fed actions

According to the latest data, US real GDP grew by 2,6% year-on-year in the second quarter on an annualized basis (previously: 1,8%), indicating the resilience of the US economy to the rate hikes so far. Currently, the Atlanta Fed's GDP Nowcast forecast for Q3,9 has increased to XNUMX%. Additionally, during the latest press conference FOMC, chairman Fed, Powell, mentioned that Fed economists stopped predicting a mild recession at the end of this year, seeing the strength of the US economy.

GDP growth in Q2,6 by XNUMX% year-on-year means that markets no longer expect a recession

Data about CBA for Q27 published on July XNUMX showed that it is realistic GDP has increased on an annual basis by 2,6%, significantly exceeding market expectations. Analyzing the individual components of GDP, growth can be expected to be sustained by three main factors in the second half of 2023.

End of stock reduction by manufacturers

Despite a significant increase in private investment in Q0,14, changes in inventories contributed only slightly (2022%) to the change in GDP. Since the second half of 44, the industrial sector has been actively reducing inventory levels, with the ISM industrial sector inventory index falling to a record low of XNUMX in June. growth cycle.

Maintaining the pace of consumption growth

Consumption rose 2,3% year-on-year in Q14,17, showing the resilience of the economy. As employee compensation increased to $13,99 trillion (previous: $19,86 trillion) while disposable income and savings increased to $19,61 trillion (previous: $869,5 trillion) and USD 840,9 billion (previously: USD XNUMX billion), a solid labor market should sustain the pace of consumption growth.

Rebound of private investment

Due to government policy, increased investments in manufacturing facilities in the south-west of the country contributed to an increase in commercial real estate investments by 4,6% yoy. At the same time, the residential real estate market stabilized in the first half of the year. Negative annual growth in housing investment is expected to start to subside.

Core inflation continues to fall, the outlook for the end of the interest rate hike cycle remains unchanged

The market still seems to assume that commodity inflation may continue into the second half of the year. Nevertheless, the possibility of a significant recovery in core inflation remains low, in contrast to CPI inflation, which may approach 3,9% in September. from 3 percent in June. In addition, the key index of core services inflation shows significant weakness. Monthly rental inflation also fell to 0,37% (previously: 0,56%), hitting the next lowest level since 2022 and contributing to a decline in annual CPI growth to 7,8% (previous: 8,03%). Along with the expected slowdown in new leases in the second half of the year, the decline in rent inflation should continue the downward trend of core inflation, which in turn would favor arguments for holding rent increases interest rates by the Fed this year.

The prospects for the stock may be favorable

Given the potential for manufacturing sector until stocks replenish and private investment regains momentum in the second half of the year, the Atlanta Fed's GDP Nowcast forecast for Q3,9, which rose to 2,39%, may be within the realm of possibility. This increase is contributed by: +0,3 pts. percentage in PCE (personal expenses), +0,06 p. percentage in non-residential investments, -0,64 p. percentage in housing investments, +0,08 p. percentage in inventories, +0,52 pts. percentage in net trade and +2021 p. percentage in government spending. In addition, a strong labor market resulted in an increase in disposable income, which is reflected in the CB and University of Michigan consumer confidence indexes, which improved significantly and are now at levels similar to those seen in QXNUMX XNUMX.

In addition, core inflation is expected to cool further due to declining rent inflation, which is an argument for the Federal Reserve to hold off on interest rate hikes for the rest of the year. Given both fundamentals and liquidity, the stock market could still be supported by the above combination of factors.