The most recent GDP estimate for the 4th quarter of 2015 came in at 0.7%, a tenth weaker than the 0.8% expected. If you missed the full report or would like to dig into the details, endless data is available at Bureau of Economic Analysis.
Fixed Income Academy’s Chief Economist, David Horner, Ph.D., believes the components suggest that although growth will remain subdued, it is likely to increase gradually as 2016 progresses. On balance, he expects growth in the first quarter to be near 1.5% and expects it to revert to the 2 percent area for the remaining three quarters, while the risk in the second quarter is a bit to the downside; the risk to the second half is a bit to the upside.
Because we encourage Academy students and fixed income professionals to understand the inputs behind any forecast to form their own opinions, David also points out the factors to watch in the near term. We feel reviewing the positive and negative inputs to GDP would help anyone interested in bonds, given its strong correlation between the economic recovery, inflation and interest rates.
The positives going forward are:
However, there are weaknesses:
Of course, when forecasting economic recoveries, it is always critical to keep an eye on employment. Rising employment has underpinned moderate growth since the 2008-2009 financial crisis and subsequent recession. David also expects continued employment gains, but at a somewhat lower level than the 200,000 plus average of the past several years. Although employment gains fuel growth, actual jobs are a bit of a lagging indicator of growth and the recent growth slowdown will likely cut into the number of new jobs for several months.