US: Real GDP growth to accelerate to 2.5% q-o-q - Nomura

Analysts at Nomura expect real US GDP growth to accelerate to 2.5% q-o-q saar in Q2 from 1.4% in Q1.

Key Quotes

“The Q1 growth was on the back of a solid 2.6% increase in final sales, which were boosted by a sharp 22.6% increase in private investment in structures. This increase in structures investment was driven by an outsized gain in investment in mining, exploration, shafts, and wells. Based our analysis, we think this subcategory will continue to increase robustly in Q2 considering the persistent upward trend in active rig counts and drilling support activity, but it is unlikely to see another unusually strong jump. Thus, we expect only a modest increase in aggregate structures investment. Moreover, we expect some acceleration in personal consumption expenditures (PCE) relative to Q1.”

“The growth in non-energy goods spending has been only modest during Q2. In particular, given slowing light vehicle sales, spending on autos will likely remain subdued in Q2, which deducted 0.6pp from PCE growth in Q1. On the other hand, incoming data suggest service spending increased steadily and would likely contribute robustly to Q2 PCE growth. Elsewhere, we think inventories likely contributed moderately to topline Q2 GDP growth in as they recover from unsustainable weakness in Q1 that reduced Q1 growth by 1.1pp.”

“A soft patch in Q2 GDP would be weak residential construction growth. Incoming data suggest multifamily construction decelerated notably although single family construction increased at a steady pace in Q2. On balance, we expect a modest drag on growth from residential investment in Q2. Altogether, our topline forecast of 2.5% suggests 1.9% average growth in H1 and 2.1% average y-o-y growth in 2017. This is consistent with our view that the economy continues to grow above potential, a trend we expect to continue in the medium term.”