QNB Group’s weekly report revealed an improvement in growth expectations in the United States. We expect the US economy to grow by 1.1% this year. While this number is not considered strong, it remains far from levels that indicate a recession. This proves the resilience of the US economy, making it in a better position to withstand any potential new shocks. This is especially important in the context of the possibility that pressures in the banking sector will affect the outlook over the next few quarters.
The report added that during the second half of last year, it seemed that a recession in the United States during the year 2023 was inevitable, as the headwinds to the economy were strong and blowing from several aspects, as high inflation led to the erosion of wages and the purchasing power of families, and commodity markets were disrupted due to the high Oil prices, the Fed began a tightening cycle, and fiscal support for the economy were removed. Discussions related to the outlook then focused on the prospects of a “hard” or “soft” economic downturn, with the consensus for growth forecasts bottoming out at 0.30% in December 2022.
But since late last year, growth expectations have improved. After reaching the minimum of 0.30%, growth expectations gradually rose to 1.05% in April 2023. This improvement was not driven by any particular event that changed future expectations, but rather by the release of activity data that It was stronger than expected, which is evidence that the fundamentals of the economy are still solid.
Citigroup Index
This process is well captured by Citigroup’s Index of Economic Surprises (CESI), a popular and useful tool for understanding and summarizing how economic data releases have outperformed or lagged expectations over a given period of time. The index for the United States includes 38 statistical measures covering a variety of key economic areas, including the labor market, real estate, industrial production, consumption and business surveys.
The index shows that the positive surprises were not isolated events. The index started an upward trajectory in January of this year, entered the positive zone at the beginning of February, and then climbed to a new peak in March. The services sector, which accounts for 77% of the economy, was a major source of positive surprises. Business surveys have beaten expectations in the past few months, indicating that the economy remains resilient.
economic flexibility factors
From our point of view, there are three factors that explain the relative economic resilience of the United States, as indicated by the stronger-than-expected data.
First, household balance sheet data shows that consumers still have a large store of savings and are able to use these resources to support consumption. In all, households have $18.2 trillion in deposits.
Secondly, energy prices have fallen significantly from average levels recorded last year, providing additional room in terms of disposable income. Energy consumption expenditures represent nearly 5% of the disposable income of average families, and reach 7% for low-income families. WTI crude prices peaked at a monthly average of $114.6 per barrel in June last year, before settling at around $80 per barrel during the winter months.
Third, labor markets remain strong, despite some isolated layoffs at large US technology companies. New job creation continues to outpace the population growth rate. Significantly, non-farm payrolls, a key measure of total employment, added 504,311,000 jobs in January and February, compared to the pre-pandemic monthly average of 177,000 jobs during 2018-2019.
