Download Fourth quarter real GDP growth revised up to 1.4%

April 2016
QUEST Monthly Economic Update
Real GDP growth for
Q4 2015 revised
upwards to 1.4%
Steady job growth continues; an
increase in the federal funds rate is
not expected until at least June
Ernst & Young LLP’s Quantitative
Economics and Statistics (QUEST)
group has developed the following
monthly publication summarizing the
latest key economic and employment
trends in a short, easy-to-read format.
Developments such as growth trends
in US gross domestic product (GDP),
US employment and Federal Reserve
activity are highlighted, as are
economic trends outside the United
States that may affect US businesses.
US economic trends
Real GDP in Q4 2015 grew at an annualized rate of 1.4%, an upward
revision of the Bureau of Economic Analysis’s estimate from the prior
month.
Annualized real GDP growth of 2.1% is expected for Q1 2016, according to
The Wall Street Journal (WSJ) Economic Forecasting Survey; this figure
slightly exceeds last month’s forecast of 2.0% for Q1 2016. The WSJ
survey also indicates that real GDP is expected to increase by 2.3% overall
in 2016, slightly below trend.
Figure 1. US quarterly real GDP growth at annualized rates
3.9%
Actual
2.1%
2.1%
2.0%
Forecast
2.4%
2.4%
2.5%
Q2
Q3
Q4
1.4%
0.6%
Q4
2014
Q1
Q2
Q3
2015
Q4
Q1
2016
Source: Bureau of Economic Analysis and The Wall Street Journal Economic Forecasting Survey.
The US economy added 215,000 jobs in March, although the
unemployment rate rose slightly from 4.9% to 5.0%, due
primarily to growth in the size of the labor force.
The Bureau of Labor Statistics’ U-6 underemployment rate,
another closely watched measure of slackness in labor markets,
also increased slightly, from 9.7% to 9.8%. The U-6
underemployment rate includes the total unemployed, workers
who are interested in employment but did not actively search
for a job in the past month and workers settling for part-time
employment, (Note: A forecast of the U-6 rate is not available.)
Employment gains for the months of January and February
were revised to +168,000 and +245,000 jobs, respectively.
Combined, job gains were 1,000 jobs less for these two months
than previously reported.
Figure 2. US unemployment rate
12.0%
11.2%
10.5%
Unemployment
actual
Unemployment
forecast
U-6 actual
9.9%
Mar. 2016: 5.0%
6.7%
Dec.
2013
6.1%
Jun.
2014
5.6%
Dec.
2014
Figure 4. US CPI year-over-year growth rate
Actual
Forecast
Feb. 2016: 1.1%
1.6%
2.0%
1.8%
0.7%
Dec.
2013
Jun.
2014
Dec.
2014
2.3%
2.3%
Jun.
2017
Dec.
2017
1.1%
0.2%
Jun.
2015
0.7%
Dec.
2015
Jun.
2016
Dec.
2016
Source: Bureau of Labor Statistics and The Wall Street Journal Economic
Forecasting Survey.
Mar. 2016: 9.8%
13.1%
2016. The inflation rate is expected to increase toward the
FRB’s target of 2% by the end of 2016.
5.3%
5.0%
4.8%
4.6%
4.6%
4.6%
Jun.
2015
Dec.
2015
Jun.
2016
Dec.
2016
Jun.
2017
Dec.
2017
Source: Bureau of Labor Statistics and The Wall Street Journal Economic
Forecasting Survey.
The federal funds rate is currently set to a target range of
0.25% to 0.50%. The Federal Reserve Board (FRB) will meet on
April 26-27. How or whether changes are made to the federal
funds rate will depend on the FRB’s assessment of economic
conditions relative to its goals of full employment and a 2%
inflation rate target. FRB members now expect only two
increases in the federal funds rate in 2016, down from their
December projection of four increases in 2016.
Figure 3. US federal funds rate
Actual
Forecast
Mar. 2016: 0.25%–0.50%
Economic trends outside the United States
• Argentina reached a preliminary agreement with four US
hedge funds to pay $4.65 billion to settle the funds’ claims on
defaulted Argentine government bonds. The deal could allow
Argentina to borrow money from foreign credit markets for
the first time since its 2001 default.
• Standard & Poor’s changed its outlook for China’s credit
rating to negative amid China’s rebalancing efforts and a
slowdown in the rate of economic growth to below 6.5%. The
International Monetary Fund (IMF) expects that Chinese real
GDP will grow 6.3% in 2016 and 6.0% in 2017.
• The latest EY Eurozone forecast calls for Eurozone real GDP
to grow by 1.8% in both 2016 and 2017. By comparison, the
previous EY forecast called for 1.8% Eurozone real GDP
growth for 2016 and 1.7% for 2017.
Source: EY, Bloomberg and the IMF.
For more information, contact [email protected]
or [email protected].
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0.1%
0.1%
0.1%
0.1%
Dec.
2013
Jun.
2014
Dec.
2014
Jun.
2015
0.4%
Dec.
2015
0.6%
Jun.
2016
0.9%
Dec.
2016
1.4%
Jun.
2017
1.8%
Dec.
2017
Note: The federal funds rate was set between 0.00% and 0.25% from December
2008 through December 2015.
Source: Bureau of Economic Analysis and The Wall Street Journal Economic
Forecasting Survey.
As shown in Figure 4, the inflation rate, as measured by the
change in the Consumer Price Index (CPI), was 1.1% in February
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professionals who identify marketplace trends, analyze proposed tax legislation
and report on implications for various types of taxpayers. For more information,
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© 2016 Ernst & Young LLP.
All Rights Reserved.
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BSC No. 1604-1907020
This material has been prepared for general informational purposes only and is not intended to
be relied upon as accounting, tax or other professional advice. Please refer to your advisors for
specific advice.
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