The economic performance in the US has been encouraging, with indicators pointing towards a soft-landing scenario – robust job growth, continuing support from fiscal policy, higher real income growth (largely a function of lower inflation) and a positive wealth impact (financial and housing assets).
This has allowed consumer demand to hold up well and as result, GDP growth projections have been upgraded by 0.5% bringing the new estimate to 2.0%. However, it is important to note that there are pockets of weakness emerging within the broader labour market, pointing to lower job and wage growth. Despite the positive surprises in the latest quarterly corporate earnings report there were greater signs of margin growth easing, a slow-down in capital expenditure and plans for reducing the labour force. All of this points towards a downward shift in the growth trajectory into the second half of the year.
In contrast to the US, the economic prospects for Europe and the UK are noticeably bleaker, even though it is likely that an outright contraction in GDP may be avoided. There has been a slight improvement in corporate and consumer confidence which largely reflects lower inflation and a fall in bond yields but lurking in the background key data around the labour market, capital spending and tighter lending standards are consistent with growth remaining well below potential growth rates.
In summary, the US appears to be experiencing a soft landing whilst the European and UK markets show signs of weakness.
To find more about the latest house views from London & Capital’s Investment Desk, read the full AndPapers Q2 2024 here.
