United States Economic Forecast

Revised data shows that GDP grew 1.3% in quarter-on-quarter annualized terms in Q1, slightly above the initial estimate. Underlying momentum was stronger than the headline reading, which was weighed on by a drop in private inventories: Household and government consumption gained speed in the quarter, while fixed investment declined at a softer rate. Turning to Q2, available data is positive: The composite PMI rose through May, while core retail sales and payroll gains both beat market expectations in April. In politics, at end-May, President Biden and Republican Speaker of the House Kevin McCarthy reached a deal to raise the debt ceiling. Congressional approval—which is not guaranteed—would avert a damaging default but also cap government spending for the next two years, dampening domestic demand slightly ahead.

Inflation came in at 4.9% in April, down from March’s 5.0%. April’s reading represented the weakest inflation rate since April 2021 but was still more than double the Federal Reserve’s 2.0% target. Moreover, core inflation remained sticky in April at 5.5%. Inflation should continue to decline later this year but will stay above the Fed’s target throughout 2023.