U.S. ECONOMY UP AGAIN

IMF - On June 29, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the United States. 

The near-term outlook for the U.S. economy is one of strong growth and job creation. Unemployment is near levels not seen in 50 years, and growth is set to accelerate, aided by a fiscal stimulus, a recovery of private investment, and supportive financial conditions. These positive outturns have supported, and been reinforced by, a favorable external environment. The balance of evidence suggests that the U.S. economy is beyond full employment.

A slow but steady rise in wage and price inflation is expected as labor and product markets tighten. Core PCE inflation is expected to rise modestly above 2 percent by mid-year. Wages have been growing broadly in line with (relatively weak) labor productivity growth, leaving unit labor costs virtually unchanged over the past 2 years. In the next several months, wages and unit labor costs are anticipated to increase at a modest pace.

Despite good near-term prospects, a number of vulnerabilities are being built-up. The planned expansion in the federal deficit at this stage of the cycle could trigger a faster-than-expected rise in inflation. That would be accompanied by a more rapid rise in interest rates that could increase market volatility both in the U.S. and abroad. There is a risk of a marked reversal of capital flows, particularly from emerging markets with weaker macroeconomic fundamentals. The net effect of U.S. budget and tax policy choices will exacerbate an already unsustainable upward dynamic in the public debt and leave few budget resources available to invest in a range of urgently needed supply-side reforms, including infrastructure spending. It will also contribute to a rise in global imbalances. These risks are added to by recent actions by the U.S. to impose tariffs on imports.

The consultation focused on the policies needed to address these risks, rebuild fiscal space, preserve financial stability, support low- and middle-income households, incentivize work, and raise medium-term living standards.

Executive Board Assessment 

Directors welcomed the strong performance of the U.S. economy, with accelerating growth, low unemployment, and muted inflation. They also welcomed the favorable near‑term outlook and the prospect of marking the longest economic expansion in its recorded history. At the same time, Directors observed heightened policy uncertainty and medium‑term vulnerabilities, including rising public debt, trade tensions, and income inequality. They stressed that developments and policy actions in the United States have significant implications for the rest of the world, and encouraged the authorities to take that consideration into account in their policy decisions.

Directors recognized the objectives of the fiscal strategy and tax reform, with its many positive features, in supporting growth and promoting structural changes to unleash the economic potential. They observed that, at the current stage of the business cycle, the expansionary fiscal policy stance, while boosting U.S. and global output in the near term, could increase risks and uncertainties in the medium term. Specifically, Directors cautioned that the procyclicality of the budget and tax policy plans would adversely affect the fiscal deficit, debt sustainability, and global imbalances. They encouraged the authorities to rebalance fiscal policy, increase the revenue‑to‑GDP ratio through a greater reliance on indirect taxes, and prioritize infrastructure spending. Directors also saw scope for targeting personal income tax relief at lower‑income households, and improving the compliance of tax provisions with the international obligations.

Directors commended the Federal Reserve for pursuing monetary policy normalization in a gradual, data‑dependent, and well‑communicated manner. They stressed the importance of continued adherence to these principles, while being mindful of potential global spillovers as monetary policy tightens. Directors concurred that, given the sizable fiscal stimulus, achieving the dual mandate of maximum employment and price stability would likely require a faster pace of policy rate increases. They pointed to an inflation surprise as an important risk that, if realized, could create volatility in financial markets, with negative global consequences.

Directors raised significant concerns over recent trade policy proposals that could have damaging effects beyond the U.S. economy, trigger retaliatory responses, and undermine the open, fair, rules‑based multilateral trading system. Directors urged the authorities to work constructively together with their trading partners to reduce trade barriers and resolve trade and investment disagreements without resorting to harmful unilateral actions.

Directors noted medium‑term risks to financial stability, including those related to high equity market valuations, rising leverage, weakened underwriting standards, and cyber risks. Managing these risks would require high‑quality and independent supervision. Directors stressed the need to preserve the current risk‑based approach to regulation, supervision, and resolution; strengthen the oversight of nonbank financial institutions; and remain committed to agreed international standards. They looked forward to further progress in implementing the remaining recommendations of the 2015 FSAP.

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Earlier:

2018, June, 29, 10:05:00 U.S. GDP UP OF 2% U.S. BEA - Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the first quarter of 2018 , according to the "third" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.9 percent.

2018, June, 22, 13:05:00 U.S. DEFICIT UP FROM $116.1 BLN TO $124.1 BLN U.S. BEA - The U.S. current-account deficit increased to $124.1 billion (preliminary) in the first quarter of 2018 from $116.1 billion (revised) in the fourth quarter of 2017, according to statistics released by the Bureau of Economic Analysis (BEA). The deficit was 2.5 percent of current-dollar gross domestic product (GDP) in the first quarter, up from 2.4 percent in the fourth quarter.

2018, June, 20, 13:00:00 U.S. TRADE WARS API - “Instead of utilizing a transparent decision-making process that provided room for input from key stakeholders, the administration continues to take serious missteps in the trade arena that could undermine American jobs and America’s role on the global energy stage. Trade wars with key trading partners will be detrimental to the U.S. economy and consumers.”

2018, June, 20, 12:50:00 U.S. OIL PRODUCTION + 144 TBD, GAS PRODUCTION + 1,092 MCFD EIA - Crude oil production from the major US onshore regions is forecast to increase 141,000 b/d month-over-month in June from 7,198 to 7,339 thousand barrels/day , gas production to increase 1,135 million cubic feet/day from 68,624 to 69,759 million cubic feet/day .

2018, June, 18, 14:00:00 U.S. IS BETTER IMF - Within the next few years, the U.S. economy is expected to enter its longest expansion in recorded history. The Tax Cuts and Jobs Act and the approved increase in spending are providing a significant boost to the economy. We forecast growth of close to 3 percent this year but falling from that level over the medium-term. In my discussions with Secretary Mnuchin he was clear that he regards our medium-term outlook as too pessimistic. Frankly, I hope he is right. That would be good for both the U.S. and the world economy.

2018, June, 18, 13:55:00 U.S. ECONOMY UP IMF - The near-term outlook for the U.S. economy is one of strong growth and job creation. Unemployment is already near levels not seen since the late 1960s and growth is set to accelerate, aided by a near-term fiscal stimulus, a welcome recovery of private investment, and supportive financial conditions. These positive outturns have supported, and been reinforced by, a favorable external environment with a broad-based pick up in global activity. Next year, the U.S. economy is expected to mark the longest expansion in its recorded history. The balance of evidence suggests that the U.S. economy is beyond full employment.

2018, June, 18, 13:50:00 U.S. INDUSTRIAL PRODUCTION DOWN 0.1% U.S. FRB - Industrial production edged down 0.1 percent in May after rising 0.9 percent in April. Manufacturing production fell 0.7 percent in May, largely because truck assemblies were disrupted by a major fire at a parts supplier. Excluding motor vehicles and parts, factory output moved down 0.2 percent. The index for mining rose 1.8 percent, its fourth consecutive month of growth; the output of utilities moved up 1.1 percent. At 107.3 percent of its 2012 average, total industrial production was 3.5 percent higher in May than it was a year earlier. Capacity utilization for the industrial sector decreased 0.2 percentage point in May to 77.9 percent, a rate that is 1.9 percentage points below its long-run (1972–2017) average.