Home Forex Federal Reserve's position explained? US growth could slow further as labor market rebalances

Federal Reserve's position explained? US growth could slow further as labor market rebalances

by SuperiorInvest

The U.S. economy remains on track to post a moderate growth rate in the upcoming first-quarter report, but the expansion shows signs of slowing.

Output for the January-March period is estimated to rise 2.0% (seasonally adjusted real annual rate), based on the median of a set of nowcasts compiled by CapitalSpectator.com.

If correct, the moderate increase will mark another slowdown in growth from the fourth quarter's strong 3.2% gain.

US Real GDP Change

A 2.0% rise in GDP is comfortably above the level that would raise alarm bells about the risk of recession, but today's revised median marks another drop for the current quarter.

The median estimate for the previous first quarter: 2.1%. In , the median immediate prognosis was even higher, at 2.3%.

Although the recent downward revisions have been mild, the directional bias suggests that economic activity is losing momentum, even if marginally.

The key question is whether the softer trend will stabilize at or near current levels or deteriorate further in the coming months.

A similar profile of slightly weaker growth was highlighted in yesterday's PMI survey data. The US production index (an indicator of GDP) fell to 52.2 in March, slightly below 52.5 in February.

Both readings are modestly above the neutral 50 mark that separates growth from contraction. The latest update still indicates “a solid monthly improvement in business activity for U.S. companies,” reports S&P Global, which publishes the PMI data.

US Preliminary PMI vs. GDP

US Preliminary PMI vs. GDP

Perhaps the Fed's inclination to cut rates later this year, despite recent difficult inflation news, is an acknowledgment that economic momentum is weakening and that the current policy rate is too high to bear. keep production going.

Despite the softer trend in U.S. economic activity, the odds that stagnation or worse are a near-term risk remain low. This is due in part to the current resilience of the US labor market, a key economic factor.

Yesterday's weekly update, for example, highlights the current positive trend as new claims for unemployment benefits fell, hitting near a multi-decade low.

“The labor market is gradually rebalancing, but the adjustment appears to come from lower hiring rather than an increase in layoffs,” says Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

“We expect job growth to slow somewhat, but the unemployment rate will remain low this year.”

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