US Economic Update – 29 March 2015
US markets fall as Fed indicates that it will push ahead with rate hikes, despite a cooling economy
US economic growth was slower in the fourth quarter of 2014 than many expected, with final GDP figures for Q4 coming in at 2.2% on Friday, against projections for growth of 2.4%. Economic growth in Q1 of 2015 is also widely expected to have slowed by a small margin.
However, employment growth has remained on a firm footing, with the economy adding an impressive average of 288,000 new jobs over the last three months.
The Chair of the Federal Reserve, Janet Yellen, said last week that despite slower growth; an initial interest rate increase/hike is still firmly on the cards for 2015.
In this regard, we note that the current market consensus is unanimous in its suggestion that interest rates will probably rise sometime between June & September of this year.
Wages have also shown signs of lifting off in the US, while the fall in oil prices has also been thought to have delivered a small pay rise to the average consumer.
Despite the environmental improvement in terms of average incomes, US consumers are not spending any more than they were in 2014. In fact, recent household savings & spending data shows a fall in consumer spending being accompanied by a similar increase in the household savings rate.
While not great for economic growth in the current period, the increase in household savings is still a positive development as higher cash buffers savers will likely smooth the transition from the ultra low interest rate era, back into a rising rate environment.
In terms of equity markets, many of the US indices fell during the week in response to a number of disappointing results updates and increasing concerns over the Federal Reserve’s intention to raise rates, even in the face of what appears to be a slowing economy.
Dow Jones / 10 Minute Intervals
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