Momentum in the US is ongoing. After strong 2Q growth, output numbers and labour market improvements point to a continued solid recovery. This is also currently a support factor on a global basis. Growth in 2Q14 stood at a 4.2% q-o-q seasonally adjusted annualised rate (SAAR), significantly recovering from the decline of 2.1% in 1Q14. It is not clear yet at which pace this momentum will continue in 2H14, but it is forecast that the recovery will continue at a higher level than in 1H14. Given the experience of the past year’s political challenges over budgetary and debt ceiling issues, some uncertainty for next year’s growth also comes from possible consequences of the mid-term elections in November and the potential need for renewal of the current debt ceiling in mid-March 2015 at the latest, when the current agreement on the suspension of the US debt ceiling will end again.
The labour market has significantly improved over the past months, and the latest batch of data largely confirms this trend. The unemployment rate fell to 5.9% in September compared to 6.1% in August. Non-farm payrolls in September grew by 248,000, after an upwardly revised 180,000 in August. The share of long-term unemployed rose slightly again to 31.9% from a rate of 31.2% in August. Another soft spot in the labour market is the fact that the participation rate remained at a low level of only 62.7%, barely changing from the rate of 62.8% seen in August.
The housing market continues recovering, but at a slowing pace. Prices rose by 4.4% y-o-y in July, as reported by the Federal Housing Finance Agency. This is clearly a lower level when compared with previous months. Prices have therefore recovered more than 20% since they bottomed out in 2011. Existing home sales have continued declining on a yearly basis. They fell by 5.3% y-o-y in August, after a decline of 4.5% y-o-y in July. Positively, vacancy rates declined for both homeowner properties and rentals, and growth in housing inventory has been almost flat in the past months.
Consumer confidence retraced somewhat. The Conference Board consumer confidence index fell back to 86.0 in September from 93.4 in August, which marked the highest level since December 2007. The purchasing manager’s index (PMI) for the manufacturing sector, as provided by the Institute of Supply Management (ISM), has also come back slightly. It was recorded at 56.6 in September, after 59.0 in August, and 57.1 in July. The ISM for the services sector also fell slightly, dropping to a level of 58.6, compared to 59.6 in August and 58.7 in July, all high levels. While some upside potential is becoming visible, the GDP growth forecast remains unchanged at 2.1% in 2014. The 2015 growth expectation also remains unchanged at 2.6%, given that some uncertainties about the pace of the economic momentum prevail.