Second quarter rebound led by consumption

After a disappointing first quarter, our calculations suggest that annualised GDP growth will rebound to more than 4% in the second quarter, driven by a big turnaround in consumption growth. Even assuming a slowdown in June, underlying retail sales are on track to rise by almost 6% annualised in the second quarter overall, boosted by healthy gains in disposable incomes and high consumer confidence. The boost to spending from tax cuts should keep growth strong over the coming quarters. But by the middle of next year, the fiscal stimulus will have largely run its course while the effects of the Fed’s cumulative monetary tightening will continue to build. The threat of tariffs on $200bn of Chinese goods imports and autos, if implemented, has the potential to generate significant disruption and hit sentiment, which would worsen the economic slowdown we already anticipate.