Download Real GDP for Q1 2016 grew by 0.5%

 May 2016
QUEST Monthly Economic Update
Real GDP for Q1 2016
grew by 0.5%
GDP and job growth slow; 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 this 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 Q1 2016 grew at an annualized rate of 0.5%, significantly
lower than the 1.4% annualized growth rate for Q4 2015.
Annualized real GDP growth of 2.3% is expected for Q2 2016, according to
The Wall Street Journal Economic Forecasting Survey (WSJ survey). The
WSJ survey also indicates that real GDP is expected to increase by 2.1%
overall in 2016, somewhat below trend and also below the forecast for
2.3% annual growth from the prior month’s survey.
Figure 1. US quarterly real GDP growth at annualized rates
3.9%
2.1%
Actual
Forecast
2.3%
2.4%
2.4%
Q2
Q3
Q4
2.0%
1.4%
0.6%
Q4
2014
Q1
0.5%
Q2
Q3
Q4
2015
Sources: Bureau of Economic Analysis and WSJ survey
Q1
2016
The US economy added 160,000 jobs in April, below the number
of jobs added in each of the past several months. The
unemployment rate remained flat at 5.0%.
The Bureau of Labor Statistics’ U-6 underemployment rate,
another closely watched measure of slackness in labor markets,
declined slightly, from 9.8% to 9.7%. The U-6 underemployment
rate includes the unemployed workers actively searching for a
job, 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.)
As shown in Figure 4, the inflation rate, as measured by the
change in the consumer price index (CPI), was 0.9% in March
2016. The inflation rate is expected to increase toward the
FRB’s target of 2% by the end of 2016.
Figure 4. US CPI year-over-year growth rate
Actual
Forecast
Mar. 2016: 0.9%
Employment gains for the months of February and March were
revised to +233,000 and +208,000 jobs, respectively.
Combined, these two months had 19,000 fewer job gains than
previously reported.
Figure 2. US unemployment rate
2.0%
1.8%
0.7%
Dec.
2013
Jun.
2014
Dec.
2014
0.2%
Jun.
2015
0.7%
Dec.
2015
2.2%
2.2%
Jun.
2017
Dec.
2017
1.1%
Jun.
2016
Dec.
2016
Sources: Bureau of Labor Statistics and WSJ survey
Economic trends outside the United States
13.1%
Apr. 2016: 9.7%
12.0%
Unemployment actual
11.2%
10.5%
6.1%
5.6%
5.3%
•
Unemployment forecast
9.9%
U-6 actual
April 2016: 5.0%
6.7%
1.6%
•
5.0% 4.8% 4.7%
4.6% 4.6% 4.6% 4.6%
Canada reported an annualized real GDP decline of 0.1% for
the month of February. Nonetheless, real annualized Q1
GDP growth of more than 3.0% is expected. This would be
the fastest quarterly pace since 2014. Q2 GDP growth is
likely to be hampered by reduced oil production due to
wildfires in Alberta.
The Organisation for Economic Co-operation and
Development (OECD) decreased its forecast for real GDP
growth in Brazil in 2016 to -4.0% from -1.2%. The decrease
reflects political uncertainty surrounding a corruption
scandal and the slow pace of structural reforms.
Sources: EY, Bloomberg and the International Monetary Fund
Dec. Jun. Dec. Jun. Dec. Jun. Dec. Jun. Dec. Jun. Dec.
2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018
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Sources: Bureau of Labor Statistics and WSJ survey
The federal funds rate is currently set to a target range of
0.25% to 0.50%. Whether the Federal Reserve Board (FRB)
changes this rate at its next meeting, June 14–15, will depend
on its 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
Forecast
Apr. 2016: 0.25%–0.50%
0.1%
0.1%
0.1%
0.1%
Dec.
2013
Jun.
2014
Dec.
2014
Jun.
2015
0.4%
Dec.
2015
0.6%
Jun.
2016
Dec.
2016
1.2%
Jun.
2017
1.7%
Dec.
2017
Note: The federal funds rate was set between 0.00% and 0.25% from December
2008 through December 2015.
Sources: Bureau of Economic Analysis and WSJ survey
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