U.S. economic growth is set to rebound in the second quarter, but a strong dollar could slow momentum and push the first interest rate hike from the Federal Reserve to later this year, a Reuters poll found.
Growth braked sharply at the start of 2015 as the economy was slammed by harsh winter weather, weak global demand and a now-settled labor dispute at West Coast ports. Activity was also constrained by the dollar as well as lower energy prices, which have hurt corporate profits.
While there are signs a recovery is underway, March data on employment, retail sales, housing starts and manufacturing suggest it could lack the vigor experienced last year when growth snapped back from a cold weather-induced slump.
“The slow momentum will likely complicate the case of a June rate hike,” said Millan Mulraine, deputy chief economist at TD Securities in New York. “We see the September meeting as the earliest point at which conditions will provide the necessary confidence in the sustainability of the economic recovery.”
The survey of 85 economists forecast gross domestic product expanding at a 3.1 percent annual pace in the second quarter. That compared to a 3.0 percent pace forecast in March and left the growth estimate for 2015 at 2.8 percent.
Growth estimates for the first quarter were slashed to a 1.2 percent pace from 2.3 percent. The government will publish its snapshot of first-quarter GDP next Wednesday.
Consumer spending is seen driving growth in the second quarter, with households expected to deploy some of the massive savings accumulated from cheaper gasoline in late 2014 and at the start of the year. Savings are at a more than two-year high.
“Consumers have an enormous windfall to spend from lower gasoline prices,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.
LESS OIL CAPEX PAIN?
Though oil-field services companies are likely to continue cutting back on capital spending in response to lower crude oil prices, economists believe the deepest cuts have already been implemented.
Last week, Schlumberger (SLB.N), the world’s No.1 oil-field services provider, said it had cut its capital expenditure plans for this year by about $500 million to $2.5 billion. Halliburton (HAL.N) said on Monday it slashed its capex by about 15 percent to $2.8 billion.
The poll singled out the dollar as the biggest threat to growth this year. The dollar .DXY has appreciated over 20 percent against a basket of currencies since last June.
Economists estimate the dollar could shave at least half a percentage point off growth and inflation this year, which they say reduces the urgency for the Fed to tighten monetary policy before September.
The U.S. central bank has kept its short-term interest rate near zero since December 2008, but a number of officials have said a rate hike will likely be considered at the June policy-setting meeting.
The survey forecast the fed funds rate at 0.375 percent at the end of the third quarter, down from 0.50 percent in the March poll. The benchmark overnight lending rate was forecast at 0.625 percent at the end of 2015, down from 0.75 percent in the March survey.
“By the end of the year I think we will have one (hike), it’s doubtful we will have two,” said Anthony Karydakis, chief economic strategist at Miller Tabak in New York.
The survey forecast a price index for consumer spending tracked by the Fed as being largely benign this year before rising towards the central bank’s 2 percent target next year.
The personal consumption expenditures (PCE) price index excluding food and energy was forecast averaging 1.3 percent this year and 1.7 percent in 2016.
Source: Reuters (Polling by Siddharth Iyer and Ashrith Doddi; Editing by Chizu Nomiyama)