US: Economic growth is slowing toward potential – BBVA

Analysts at the Research Department at BBVA kept the full-year growth forecast at 2.2% for the US in 2019, followed by further deceleration to 1.5% in 2020, around the trend rate.

Key Quotes: 

“Global growth has slowed markedly this year but remains positive. We forecast 2019 growth at 3.1% followed by a slight improvement in 2020 to 3.2%.”

“Trade tensions have been weighing on capital spending, and sentiment remains depressed with forward-looking indicators pointing toward more slowdown to come. More worryingly, there are beginning to be signs that this is spilling over to the services sector.”

“Consumer fundamentals remain reasonably solid, apart from trade, but the labor market is softening. Payrolls growth, hours worked, and overtime hours all point to some deterioration.”

“Inflation is sticky below the Fed’s target, and expectations are down, including the Michigan expectations survey which is down to an all-time low.”

“The principle risks to our view, on both the upside and downside, come from the trade war. A resolution could unlock new capital spending while further escalation could tip the economy into recession.”