US: Growth acceleration intact in 2017 despite hurricane disruptions - HSBC

In view of analysts at HSBC, the US economy’s cyclical upturn has continued in 2017 on the back of a rebound in business investment spending.

Key Quotes

“After falling 0.6% in 2016, business fixed investment surged 7.0% at an annual rate in the first half of 2017. Business surveys point to a continuation of strong capital spending in the second half of the year. The National Federation of Independent Businesses’ (NFIB) monthly survey of small businesses shows that a rising percentage of the group’s membership plans to increase capital outlays in the coming year. Other surveys reinforce the message from the NFIB. The quarterly Business Roundtable survey of large company CEOs points to rising capital expenditure in 2017, as does the Federal Reserve Bank of Philadelphia’s monthly survey of manufacturers. We expect overall business fixed investment to increase 4.5% in 2017, helping to lift GDP growth to 2.3% for the year, up from 1.5% in 2016.” 

“The hurricanes that struck the states along the US Gulf coast in September have not altered our expectations for GDP growth or inflation. The devastation wreaked by hurricanes Harvey and Irma was tremendous, but the disruption to national economic activity is likely to be short-lived. Evidence from previous large-scale hurricanes, such as Katrina in 2005, show that industrial production will be depressed for a few months, but then is likely to rebound quickly. Gains in payroll employment are likely to fall for two or three months, but then bounce back. In the six months prior to August, 2005, when hurricane Katrina struck New Orleans, monthly payroll gains averaged 256,000 jobs. In the six months following the start of the recovery in October, job gains averaged 243,000. One worry about hurricanes along the Gulf coast is the impact on oil refineries and the price of gasoline. Average gasoline prices spiked higher for about two weeks in 2005 but came down almost as quickly as they rose. The impact on inflation and on real consumer incomes appeared to be minimal.” 

“From 2012 to 2016, core CPI inflation averaged 1.9%. So far in 2017, core inflation has decelerated, dropping to 1.6% in August. This occurred despite a drop in unemployment from 5.4% in Q2 2015 to 4.4% in Q2 2017. The link between low unemployment and inflation appears much weaker now than in the past. We expect that core inflation will remain low, averaging a bit less than 2.0% from now through to the end of 2019.”