© Kit Juckes
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I believe that the US economy is growing, since the slowdown of the first quarter has proved to be temporary and is already behind us. Employment growth has been steady for a while now, indicating that this year is likely to be close to the previous years in terms of GDP growth. Hence, it could be around 2.4%, the same numbers as we had last year. I believe the second half of the year will improve compared with the first. Likewise, the second quarter estimates will be better than these in the first.
As we look at the things from the underlying growth rate perspective, US economy is slower than people have hoped a few years ago, but better than some pessimists seem to discount.
The surge in hiring in May also boosted wages: average pay rose 8 cents to $24.96 an hour pushing the annual increase to the highest since mid-2013. What could be the impact of greater buying power in terms of economy and the US Dollar?
I have to say that growth in buying power is not achieved completely through the acceleration in average earnings, which has not been that large during the last years. If we look at the average of past years, it was running at 2.1% in 2013, at 2% on average in 2014 and, during the first half of 2015, it has accelerated at the level of 2.2%. This is a tiny development, although it could indicate a path of recovery.
A more important indicator is the real wage growth, calculated by taking into account the inflation. The US experienced negative or zero inflation over the first quarter, and this is what affected the buying power in real terms for US consumers more significantly. I believe the higher buying power will be reflected in the second and third quarters GDP numbers in particular.
The persistence of underemployment is a reason why the Federal Reserve has resisted raising interest rates. Can we expect the rise of interest rates in the near future if the job gains continue to grow?
The very consensus is the interest rates will be raised by the Fed in September. I believe the economy will have to gain some momentum for that not to happen.
What could be the drivers for US Dollar until the end of 2015?
The US Dollar rose too far quite rapidly at the start of the year and right now it is having a pause. The Greenback is going to be choppy and volatile through the course of the summer, but nevertheless, I believe we will continue to see another 5-10% upside over the next 12 months.