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Article / 23 January 2014 at 14:58 GMT

US economy says goodbye to 2013 in fine fettle

Mads Koefoed Mads Koefoed
Head of Macro Strategy / Saxo Bank
Denmark

• December jobs data was blip, US set fair for 3% growth in 2014
• Chicago Fed index indicates recovery gathering pace
• US Fed likely to continue with tapering at next week's meeting

By Mads Koefoed

Bottom line: The employment report for December may have been dismal, but overall data for the final month of 2013 paints a picture of an economy growing above trend. I expect this momentum to be carried into this year where economic growth could reach a near decade-high of 3 percent.

US GDP vs. Chicago Fed National Activity Index

Details: The world's largest economy recorded another strong month in December with the Chicago Fed's National Activity Index (CFNAI*) printing 0.16. This was quite a big disappointment compared to the consensus expectation of 0.9* and came on the back of 0.69 in November, which was the strongest print in 12 months.

The monthly CFNAI series is rather volatile so the three-month average is normally applied (CFNAIMA3); which also makes it serve as a monthly "GDP proxy" for the US economy. Any reading above zero indicates that the US economy is growing faster than trend GDP growth, which is about 2.5 percent. The CFNAIMA3 was mostly unchanged in December at 0.33 compared with 0.36 in November. In September the series printed 0.09 suggesting that overall, the US economy was stronger and growth more broadly based in Q4 even though the third-quarter GDP growth rate of 4.1 percent** will be hard to beat — but restocking of inventory was a key contributor to growth in Q3.

US GDP vs. Leading indicators

There is nothing in this report to discourage my call for a pick-up in growth in the US economy this year, and what is more important in the short term, this report confirms that the US economy continued to grow at a "moderate" (to use Fed-speak) pace in Q4, suggesting that from a fundamental perspective there is nothing hindering another tapering announcement at US Federal Reserve chairman Ben Bernanke's final Federal Open Market Committee meeting on January 28-29. An announcement is expected at 19:00 GMT with consensus currently forecasting another USD 10 billion drop in QE3 divided equally between Treasuries and MBS.

 

* The CFNAI is a composite of 85 individual economic time series.
** Quarter-on-quarter, annualised.

23 January
Mads Koefoed Mads Koefoed
Correct chart 2:

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