Economic Analysis - Investment Set To Pick Up - DEC 2017


BMI View: US economic data remains positive but largely unremarkable, and despite significant disruption to the economy from hurricanes in August and September, our below-consensus forecasts for 2017 and 2018 are largely unchanged. The prospect of tax reform in early 2018, as well as already-strong leading indicators for business investment, point to fixed capital formation being a bright spot over the next several quarters.

The upward revision to real GDP in the August 30 release of the advance national accounts estimates to Q217, from 2.6% q-o-q annualised to 3.0%, pushed the base effect up for growth such that it justified an upward revision to our 2017 full-year GDP projection 2.1% from 2.0%. Alongside stronger-than-expected personal consumption expenditure data, we have also raised our real private consumption growth projection for 2017 to 2.7% from 2.6%. The third release of Q217 GDP made on September 28 revealed a final outturn of 3.1%, but this made no difference to our estimate. Otherwise, there are no material changes to our outlook for 2017, or for 2018, for which we maintain our 2.1% projection. This keeps us slightly below Bloomberg consensus, where the 2017-18 average is around 2.2-2.3%.

For 2017, our forecast implies a growth rate of around 2.2% q-o-q annualised in H217, falling back to 2.0% - slightly above potential - in each quarter of 2018. In other words, we anticipate H217 growth to be almost exactly the same as in the first half of the year. Part of this takes into account an expected hit to growth from Hurricane Harvey's impact on the Gulf Coast, and in particular the Houston area, which represents around 3.5% of total US GDP ( see ' Hurricane Harvey: Assessing The Economic Impact ' , 30 August). While it is still too early to assess the exact magnitude of the lost output, we expect the impact on annual GDP to be muted overall, with a hit to annualised quarterly real GDP in Q317 offset by a rebound in Q417 and Q118.

Industrial Production Takes A Hit From Harvey
US - Industrial Production, % m-o-m
Recessions shaded. Source: Federal Reserve, BMI

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