Impressive US GDP growth, coming in at 3.7% in H2 2013
On a year-on-year basis, GDP growth has picked up from 1.3% in the first quarter of 2013 to 2.7% in the fourth, and is likely to accelerate further to around 3.3% in the second quarter of 2014.
In Q4 2013, US real GDP growth was quite strong for the second quarter in a row. Economic activity expanded by 3.2% q-o-q annualised, in line with consensus expectations. On a year-on-year basis, GDP growth accelerated from 2.0% in Q3 to 2.7% in Q4.
Strong pick-up in private final demand growth
Details of the report showed that although Q4 GDP growth was less buoyant than in Q3, it was of better quality. The contribution from stockbuilding was huge in Q3 (1.7 percentage point). Although the pace of stockbuilding inched up further in Q4 (to 0.8% of GDP, significantly above its long-term average of 0.4%), the positive contribution to GDP growth was actually substantially less sizeable (0.4 percentage point). However, given the high pace of stockbuilding reached in Q4, inventories are unlikely to make a positive contribution to GDP growth over the coming few quarters.
Nevertheless, the corollary of this less sizeable positive contribution from stockbuilding last quarter is that the strength of growth was much more linked to a powerful expansion in final demand. Due mainly to a fall in brokers’ commissions on home sales, residential investment contracted heavily (-9.8% q-o-q annualised), and non-residential investment grew only moderately (+3.8%). However, consumption and export growth picked up markedly (see table below), as was widely expected following the publication of very upbeat monthly data. The end result was that private final demand grew by a very robust 4.0% in Q4, following +2.8% in Q3.
Government consumption and investment bounced back a little in Q3 (+0.3% q-o-q annualised), but fell back in Q4, registering a 4.9% contraction. Spending by states and local authorities rose further (+0.5%), but this was largely offset by a sharp fall in federal spending (-12.6%), partially the – temporary – consequence of the 16-day government shutdown in October.
Unchanged scenario for 2014
Q-o-q annualised GDP growth averaged an impressive 3.7% in H2 2013. Although there was definitely a substantial improvement in economic growth over that period, GDP data are probably overstating its extent. We expect the opposite in H1 2014.
Basically our growth scenario remains unchanged overall. The credit revival is alive and well, financial conditions remain extremely relaxed, the energy boom is supporting the economy, the ongoing housing recovery is continuing – although unevenly – and is starting to have a very substantial knock-on effect on the economy. And, very importantly, the sharp federal fiscal drag will gradually fade over the coming quarters. We therefore remain quite optimistic about the US economy for 2014.
More specifically, we continue to expect that GDP growth will settle at a robust 3.0% between Q4 2013 and Q4 2014. Nevertheless, growth is likely to temporarily fall back to around 2.7% in Q1 and, on average in H1 2014, GDP expansion is very likely to be below what was recorded in H2 2013.
However, it would be a mistake to interpret that as a slowdown. GDP is only one indicator of economic activity and its growth rate can be very volatile in the short-run (see chart on previous page). The behaviour of year-on-year GDP growth probably paints a more accurate picture of what is happening in the economy. Y-o-y GDP growth actually picked up from 1.3% in Q1 2013 to 2.7% in Q4, and is likely to accelerate further to around 3.3% in Q2 2014.