US: Look for constructive topline activity near 3% over the Q2-Q4 2016 period – RBC CM

Research Team at RBC Capital Markets, suggests that the bifurcation between strong domestic growth and soft globally-sensitive sectors of the US economy has been a prevalent narrative in recent quarters.

Key Quotes

“This is something borne out in the Q1 GDP results where the more industrial-sensitive sectors of the economy pulled significantly from topline growth (capex subtracted -0.5ppt, goods exports peeled off -0.2ppts and inventories were a -0.2ppt drag) while the household-linked areas did quite well considering the tumultuous financial markets—consumer spending added +1.3ppt while res investment contributed a lofty +0.6ppts (the largest contribution since Q4 2012).

Critically, recent trends suggest a potential turning point in the industrial malaise. Specifically, ISM manufacturing is back above breakeven and new orders are averaging 56.6 over the last three months—the best trend since January 2015. We expect the unwind of what had been an important source of weakness will allow the firmer underlying trends in the US economy to reassert themselves and look for constructive topline activity near 3% over the Q2-Q4 2016 period.”