The US economic recovery appears to be strengthening. Despite the impact of the payroll tax hike and higher gasoline prices on real incomes, first-quarter real consumption growth is on course to increase by around 2% annualised. The key activity surveys have strengthened, orders and production are rising rapidly and employment growth remains healthy. The housing rebound continues to gather pace, boosting net wealth and construction activity. Fiscal policy remains a downside risk, with the possibility of a Federal government shutdown later this year if budget negotiations break down, and the euro-zone crisis is still staggering on. Nevertheless, with the Fed likely to keep monetary policy unusually loose, we expect first-quarter GDP growth to come in at 2% annualised or better, with a further modest pick-up later this year.
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