UBS House View Daily

Thought of the day

31.07 - Consumer and capital spending show promise

A slightly weaker-than-consensus US GDP print of 2.6% for the second quarter added to pressure on both the US dollar and equities on 28 July. That initial read was reinforced by a downward revision of first-quarter GDP to 1.2%, and further evidence of soft wage growth from a lukewarm 0.5% quarter-over-quarter rise in ECI data.

But a look at the details offers encouraging growth signals ahead:

  • Second-quarter growth missed expectations, but has still picked up markedly from the first-quarter run rate of 1.2% (lowered from 1.4%). And on a year-on-year basis, GDP grew 2.1% in the second quarter, its best result since 3Q15.
  • Consumer spending rose 2.8%, underpinned by a 3.2% gain in real disposable incomes, the highest rate of increase in two years.
  • Capital spending continues to climb, with business investment in equipment increasing by 8.2%, the largest rise in almost two years.

So economic conditions remain favorable for corporate earnings growth, which we estimate at 11% for this year. Still subdued wage and price pressures support our expectations the Federal Reserve will hold on rates until December at the earliest. We remain overweight global equities.

Chart of the day

US data offers promising growth signals for the second half

Consumer and capital spending show promise

Source: UBS CIO, Thomson Reuters as of 31 July

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