US: Upbeat about the prospects for growth over 2018-19 - Nomura

Analysts at Nomura suggest that this week ushers in a host of important economic indicators of US economy for February.

Key Quotes

“In particular, we expect a steady, 0.2% (0.203%) m-o-m increase in February’s core CPI, corresponding to 1.9% on a 12-month basis. Moreover, with a rather soft reading in January, we expect February’s retail sales to rebound, consistent with the bright outlook for consumers as the unemployment rate remains low and benefits of tax cuts started affecting consumers’ outlook. Finally, we expect a modest increase of 0.4% m-o-m for February’s industrial production reading, up from the 0.1% contraction in January.”

“Despite our optimistic outlook for this week, our first quarter GDP tracking estimate stands at 1.7% q-o-q saar after incoming data this week. However, we remain upbeat about the prospects for growth over 2018-19, particularly in light of the substantial increase in federal spending that will likely begin in the second quarter of this year. February’s employment report, showing a hearty 313k increase in nonfarm employment highlights the solid economic outlook despite the softer than expected Q1 GDP tracking estimate.”

“The employment report showed that wage pressures remain largely subdued, especially in light of downward revisions to average hourly earnings (AHE) growth in earlier months. This stands in contrast to anecdotal evidence provided in the March Beige Book this week where local business contacts noted that “wage growth picked up to a moderate pace,” a notable change from January’s “modest pace.”

“Aside from the solid February employment report last week, January’s factory orders data indicated that business equipment investment may be moderating slightly as shipments and orders of core capital goods (nondefense excluding aircraft) declined during the month. However, this decline comes on the heels of a likely unsustainable pace of increases in core shipments and orders last year and we expect the slowdown to be largely transitory. Finally, the trade deficit widened in January to $56.6bn with softness in goods exports concentrated in capital goods and industrial supplies.”