CHART OF THE WEEK

As expected, US growth continued to slacken in the fourth quarter of 2015, increasing at an annual rate of 0.7%. Despite losing pace, consumer spending remains solid, and residential construction is still growing at a rate of about 8%. Public spending is another positive factor.

Our analysis

Amongst the factors holding back growth are exports, and non residential investment which was penalized by cuts associated with the drop in oil prices. However, the lower change in inventories was the main drag in 2015Q4. As the decline was lower than expected, inventory building remains relatively high, creating a risk for the first quarter of 2016. That said, inventories are prone to sharp revisions in subsequent GDP estimates.

We believe that the United States is experiencing a mid-cycle slowdown but is not on the verge of a new recession. In 2016, once excess inventory has been reduced and the downturn in shale-oil related investment is behind us, growth should pick back up.

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