The US economy rose by an annualized 3.2% in Q1 of 2010, the third robust increase in GDP in a row. The inventory cycle and particularly consumer spending growth provided the strongest support to the GDP rise. While so far the recovery had hardly any positive effects on employment, the labor market brightened markedly in April with 290,000 jobs having been created. The job market is expected to keep improving in the months ahead; this should be supportive to private consumption growth and the housing market. The latter could result in the downturn in the residential construction sector finally coming to an end.
The manufacturing sector made outstanding gains in activity in recent months, owing to the rise in corporate investment. In turn this fuelled replenishment of currently still low stocks in the manufacturing supply chain. Consequently, orders for durable goods remained on a positive trend so far this year. The overall improvement in business conditions is reflected by the ISM PMI index which in May remained close to its 6-year peak of April.
Other leading indicators also point to solid economic growth in the 2nd half of 2010 as the private sector gradually gains further strength. At the same time, government support will likely be reduced. GDP growth could amount to 3.5% this year.
In 2011 a pick-up in (construction) investment should compensate for a further easing in government support measures. GDP growth is forecast to remain at around 3.5% next year.