/perspectives/macroeconomic-research/macroeconomic-outlook-expansion-continues-despite

Expansion Continues Despite Weak Q1

U.S. economic growth was below trend in the first quarter, but our second-quarter Macroeconomic Outlook calls for a rebound in the second half of 2016.

September 08, 2016


This sector report is excerpted from the Second Quarter 2016 Fixed-Income Outlook.

The initial estimate of real gross domestic product (GDP) growth in the first quarter was 0.5 percent, well below the average real GDP growth rate of 2.1 percent seen over the last five years. Net exports and an ongoing inventory adjustment shaved a combined 0.7 percent off growth, but we see the drag from these components as transitory. We also attribute part of the weakness to “residual seasonality,” a statistical quirk that biases GDP growth downward in the winter months while boosting growth in the second and third quarters.

U.S. GDP Growth Is Gaining Momentum

We anticipate that growth will recover in the second quarter, thanks in part to the substantial easing of financial conditions since February. High-frequency indicators of economic activity support our forecast, with the Markit U.S. Composite PMI recovering to 52.4 in April from 50.0 in February.

 

World Oil Supply/Demand Should Balance in 2016

Source: Guggenheim Investments, Bureau of Economic Analysis, Markit, Haver Analytics. Data as of 5.4.16.

We anticipate that growth will be closer to trend in Q2, thanks in part to the easing of financial conditions since February. High-frequency indicators of economic activity support our forecast, with the Markit U.S. Composite PMI recovering to 52.4 in April from 50.0 in February. While payroll growth has downshifted from an average monthly rate of 282,000 in Q4 of 2015 to 200,000 in the three months through April, we see this as a more sustainable pace of net job creation. We forecast further slowdown in payroll growth over the next few months, with rising labor productivity bridging the gap between faster GDP growth and slower job gains.

We expect the Fed will raise rates once in 2016 as policymakers will be watching Chinese growth, the “Brexit” vote in June, and the U.S. presidential election in November. Fed officials have given greater weight to global economic developments in their policy framework, which in practice means that the FOMC has become less tolerant of financial market turbulence and more tolerant of inflation at the margin. We see this dovish shift as benefiting U.S. credit markets and inflation-sensitive assets, such as Treasury Inflation-Protected Securities (TIPS).

A more accommodative Fed outlook has pushed interest rates lower and weakened the U.S. dollar, which depreciated by 6.3 percent on a trade-weighted basis between mid-January and the end of April. Oil prices have benefited from dollar weakness. Our research team’s oil model indicates that WTI oil prices will average $40–$45 per barrel for the remainder of 2016. In sum, solid but unspectacular economic growth, a cautious Fed, and improving oil market supplydemand fundamentals underpin our positive outlook for the U.S. economy, which should continue to support a historically low default environment for credit.

Oil Prices Should Stabilize Later this Year

Near-term price volatility is likely, and another negative shock is possible, but oil prices should start to stabilize as supply/demand comes into balance. Our model indicates that oil prices will average $40–$45 per barrel for the remainder of 2016.

 

World Oil Supply/Demand Should Balance in 2016

Source: Guggenheim Investments, Bloomberg, Haver, EIA. Data as of 3.31.2016

 


FEATURED PERSPECTIVES

May 23, 2019

U.S.-China Trade War: The New Long March

Beijing is preparing for a protracted standoff as the U.S.-China trade war ramps up.

May 17, 2019

Quantifying the Credit Risk and Default Runway

After the recession starts, high-yield bond and bank loan issuers have at least a 12-month runway before we experience a large wave of defaults.

April 29, 2019

The Next Step for the Fed Could Be a Hike

Signs of economic strength suggest the market is wrong to price in a rate cut.


VIDEO

First Quarter 2019 Fixed-Income Outlook 

First Quarter 2019 Fixed-Income Outlook

Portfolio Manager Adam Bloch and Macroeconomic and Investment Research Group Director Matt Bush share insights from the first quarter 2019 Fixed-Income Outlook.

Core Fixed-Income Conundrum 

Solving the Core Conundrum

Anne Walsh, Chief Investment Officer for Fixed Income, shares insights on the fixed-income market and explains the Guggenheim approach to solving the Core Conundrum.







Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objective, risks charges, expenses and the other information, which should be considered carefully before investing. To obtain a prospectus and summary prospectus (if available) click here or call 800.820.0888.

Investing involves risk, including the possible loss of principal.

Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited and Guggenheim Partners India Management. Securities offered through Guggenheim Funds Distributors, LLC, an affiliate of Guggenheim, SI, GFIA and GPIM.

© Guggenheim Investments. All rights reserved.

Research our firm with FINRA Broker Check.

• Not FDIC Insured • No Bank Guarantee • May Lose Value

This website is directed to and intended for use by citizens or residents of the United States of America only. The material provided on this website is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation. Investing involves risk, including the possible loss of principal.