US outlook: Growth remains on course  - Wells Fargo

According to analysts from Wells Fargo, US economic activity is firming up, despite the disappointing employment data.

Key Quotes: 

“May’s disappointing employment report, which saw just 138,000 jobs added to nonfarm payrolls, coming on the heels of sluggish Q1 GDP growth, raised additional doubts about whether the post-election bump in confidence surveys and the stock market will translate in tangible economic gains this year. The softer economic news has coincided with lower readings on inflation at the consumer level. Forecasts for Q2 growth have been steadily downgraded and doubts are beginning to surface about how quickly the Federal Reserve
will be able to normalize rates.”

“Periodic disappointments are nothing new. It simply does not take all that much to pull growth off track when real GDP growth is firmly centered on a 2 percent pace. That said, we are still holding onto our expectations that tax reform will be passed either late this year or early next and that some sort of infrastructure program will move through Congress as well.”

“We fully expect the Fed to raise interest rates two more times this year and announce plans to begin scaling back its balance sheet either late this year or in early 2018. 

“Economic activity is firming up, despite the disappointing employment data. Real personal consumption got off to a solid start and should rise at a 3.3 percent pace for Q2. Business fixed investment also appears to be growing modestly, helped in part by the continuing revival in energy production. We are looking for real GDP to rise at a 2.5 percent pace for the quarter and increase 2.2 percent in 2017.”