US growth still strong with signs to watch

In recent days, there has been some discussion around the outlook for economic growth in the US. We wanted to explore that in a bit more detail.

For now, we think the US economy is in pretty good shape, even if there’s a lot of uncertainty around government policy.

There are some signs of softness in the economy, and we will continue to monitor those, but the current growth rates should still be a source of envy for the rest of the Developed World.

Let’s dig into the details a bit more. It’s worth remembering that the US economy has been the biggest driver of growth in the Developed World. As an example, the chart below shows the relative growth rates of the US, the Eurozone and the UK.

There have been a few datapoints recently that have come in a bit weaker than expected. The chart below shows US retail sales growth relative to consensus expectations. We can see that after a few months of better than expected results, January retail sales came in weaker than forecast. 

There are also signs that consumers are a bit less optimistic, as you can see in the chart on consumer sentiment below.

We can also look at an aggregate view of US economic performance. The chart below shows an Economic Surprise index comparing US macro data relative to consensus forecasts. We can see that this figure is now slightly negative, suggesting that recent data releases have been slightly disappointing.

In the labour market, we’ve seen a slight jump in initial jobless claims – as the chart below shows – even if the 4 week moving average remains low.

If we do see some signs of softness in recent weeks, the US economy overall remains in pretty good shape. The Atlanta Federal Reserves Nowcasting model predicts 2.3% growth in the economy in the first quarter – still a pretty healthy figure. In terms of job creation, payrolls data has, if anything, strengthened a bit in recent months, as you can see in chart below.

As for the consumer sentiment data, we’re mindful that the so-called “soft” data – based on sentiment surveys – has generally been weaker than actual “hard” macro data. Consumers may have been worried, but they’ve continued to spend.

That said, Government policy, announced or implemented, has proven quite disruptive – raising concerns on tariffs and possible job losses in the public sector. It’s too early to say what the impact could be, but it’s something we’ll continue to monitor.