Hoping to Sidestep the “New Normal”

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Special Guest Blogger: Tim Kearney

Manufacturing had a difficult first quarter, perhaps the result of trade concerns. A few areas of the economy recorded weakness was. The slowdown had been presaged by Manufacturing PMI data, which have been ebbing for nearly a year. Manufacturing output in March was flat with the YoY growth rate down to 1.5%. Six months ago, the YoY growth rate reached 3.5%, its fastest pace in six years. The key to the outlook is not so much the growth rate, but rather the business investment data, as well as the following productivity data.

There has been a modest lift of the productivity growth rate over the past two years, but not enough yet to challenge the narrative that growth will sink back to the New Normal trend rate of about 1.8%. New York Federal Reserve President John Williams has warned that the economy is unlikely to return to the 4% growth rates of the 1990s, pegging potential growth at 2%. This is the state of play for the next two to three quarters. Right now, I expect that growth will continue above 2.5%, which would be a major surprise to the Fed but very positive for markets.

Please follow GDP on page 70 of the Global Perspectives book.

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