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Deceleration in US GDP growth should prove transitory

Summary:
Economic growth in the US slowed in Q1, but we expect a sharp rebound in Q2 as household consumption and corporate investment pick up.US Q1 GDP grew 2.3% q-o-q SAAR, slowing from 2.9% in Q4. Part of the deceleration was due to ‘residual seasonality’, we think, and was therefore technical.We expect US private consumption to rebound sharply in Q2, and, with investment growth likely to stay firm, we think Q2 GDP growth could head towards 3.5-4.0%.The Q1 employment cost index wage reading was solid at 0.8% q-o-q, accelerating from 0.6% in Q4. This is in line with our view that wage growth will continue to improve but remain under control. Wage growth should gently head towards 3.0% y-o-y later this year, in our view.We still expect three additional Fed rate hikes this year (with the next one

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Economic growth in the US slowed in Q1, but we expect a sharp rebound in Q2 as household consumption and corporate investment pick up.

Deceleration in US GDP growth should prove transitory

US Q1 GDP grew 2.3% q-o-q SAAR, slowing from 2.9% in Q4. Part of the deceleration was due to ‘residual seasonality’, we think, and was therefore technical.

We expect US private consumption to rebound sharply in Q2, and, with investment growth likely to stay firm, we think Q2 GDP growth could head towards 3.5-4.0%.

The Q1 employment cost index wage reading was solid at 0.8% q-o-q, accelerating from 0.6% in Q4. This is in line with our view that wage growth will continue to improve but remain under control. Wage growth should gently head towards 3.0% y-o-y later this year, in our view.

We still expect three additional Fed rate hikes this year (with the next one at the Fed’s June meeting) and two more next year.

Thomas Costerg
Thomas covers the US and Canadian economies from New York. He was previously based in London, covering the UK and the euro area. Thomas started his career with Lehman Brothers in London in 2007 and also worked at a Paris-based private bank and asset manager. Do not hesitate to contact Pictet for an investment proposal. Please contact Zurich Office, the Geneva Office or one of 26 other offices world-wide.

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