U.S.: Watch for a 7% GDP growth rate despite durables’ set-back - ING

James Knightley, the Chief International Economist at ING, suggests that despite a sharp slowdown in the U.S. durable goods orders growth in March, the stimulus-fuelled consumer sector provides a strong underpinning and both residential and equipment investment will contribute positively to what looks likely to be a very strong Q1 GDP figure.

"March US durable goods orders are weaker than expected, rising 0.5% MoM versus the consensus forecast of 2.3%. There are upward revisions to the history, but it still classifies as a downside miss."

"The weakness is concentrated in the transport section (-1.7%) with the semi-conductor chip shortage leading to well-publicised production cut-backs at automakers. This is resulting in fewer orders for other vehicle components. The electrical equipment component (-1.5%) is suffering for the same reason."

"Stimulus payment fueled consumer spending, coupled with robust residential construction activity resulting from a red-hot housing market will give 1Q GDP growth strong foundations. On top of this, there is a rebound in oil and gas drilling on higher prices, while durable goods orders point to a very healthy contribution from investment in equipment and software."

"The main drags will be inventory rundowns due to supply chain issues, tied to the same semi-conductor chips issue. Net trade will also subtract from headline growth as strong consumer spending sucks in imports while weaker growth elsewhere will limit export growth."

"On balance, we see the risks to 6.5% consensus forecast as being to the upside and forecast 7.4% annualised growth. 2Q 2021 should be even stronger as the re-opening gathers increasing momentum."