Our outlook for the US economy for 2016 is for decent growth, driven by Personal Consumption, Government Consumption (finally back to contributing positively to growth after years of retrenchment) and Investments (particularly strong performance of Residential Investments, while Non-Residential Investments will face a difficult first part of the year).
We believe the probability of a U.S. recession this year is still limited and the resilience of our base case is confirmed against further stress on selected financial indicators. In particular, we expect the US consumer to be resilient and sustain growth on the back of a healthy labor market, improvements on the compensation profile, and still moderate inflation, which should support real income growth.
Source: Pioneer Investments, data as March 4, 2016; E = Estimate
- Leading indicators seem to point to a tentative stabilization and improvement in growth of the US and sectors hit by the strong dollar and weak oil price.
- We currently expect inflation to move gradually towards the Fed Target of 2%. Should the oil and commodity prices trend higher than we currently assume in our scenario, we may witness a higher than expected increase in inflation, still not priced in by the market.
- On monetary policy, we believe that Fed will be on hold in March, and will manage market expectations carefully. A move in March would been an unwelcome surprise for financial markets, but we see this risk very limited.
To read Monica’s entire U.S. Economy Update, please click here.