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 Gross domestic product increased in the first quarter at an
annualized rate of just 0.5 percent, implying quarterly growth of
around just 0.12 percent, its weakest pace in two years. It was hit
by soft consumer spending, businesses cutting inventories and
investment and a strong dollar hurting exports.
The labor market though remains robust, with average employment
gains of 209,000 in the first quarter. A further 200,000 of non-farm
payrolls are foreseen for April, data on which will be released on
Friday.
The Federal Reserve left interest rates unchanged in the past week
and kept the door open to a hike in June while showing little sign
it was in a hurry to tighten monetary policy further given the
economy's slowdown. It hiked rates in December for the first time in
nearly a decade.
The core rate of PCE (personal consumption expenditure) inflation,
the Fed's preferred gauge, remains below the central bank's 2
percent target in the first quarter, easing to 1.6 percent in the
year through March, making rate hikes less likely. Wage growth was
also muted.
However, strong labor market data could eventually be the trigger
for Fed action.
Harm Bandholz, chief U.S. economist at UniCredit, believes the Fed
will act in June, although this depends on how quickly employment
gains impact household spending and cause the economy to rebound.
"There's no loss of underlying momentum in the labor market,"
Bandholz said, adding that there could be fewer jobs gains because
mild weather did not curb construction so much in previous months.
"Something like 175,000 or more should give the Fed confidence that
things are going OK."
Jobs apart, purchasing manager indexes (PMIs) from the Institute of
Supply Management on Monday and Wednesday are also expected to show
U.S. manufacturing in a second straight month of growth in April and
consistent expansion in the services sector.
EURO ZONE GIVES RARE STAR TURN
In Europe, the euro zone economy grew at its fastest pace in five
years in the first quarter, driven by expansion in France and Spain
and surpassing both the United States and Britain, although it may
prove just a blip and the bloc also returned to deflation this
month.
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Euro zone factory activity is growing at only a weak rate in April
from March, according to expectations for Monday's manufacturing PMI
index. The services PMI is also seen showing no real acceleration
after a 13-month low in February.
The euro zone's growth surge came less than a year after Greece was
nearly ejected from the bloc.
The indebted nation will back on the agenda in the coming week as
Athens and its international lenders close on a deal on a package of
reforms and further contingency measures. The work is expected to
conclude when euro zone finance ministers convene in Brussels on May
9.
The economic week though will start in China, where the official
factory PMI will be released on Sunday. It is seen rising to 50.4 in
April from 50.2 in March, according to a Reuters poll.
This would be only just above the 50 mark dividing growth from
contraction, but a level that would be its highest since October
2014 and adding to a view that the prolonged slow down of the
world's second-largest economy is easing..
Outside the G7, Australia's central bank will meet for a policy
review on Tuesday and, although it is widely expected to keep its
cash rate at a record low of 2.0 percent, some economist expect a
cut.
Consumer prices fell unexpectedly last quarter and key measures of
core inflation slowed to a record low and well below the Reserve
Bank's 2-3 percent target range.
(Editing by Jeremy Gaunt)
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