Industry in particular continues to power ahead. With the strong increase in April (+1.1% month-on-month), output was already around 0.9% above the average level in the first three months. Particularly striking is the ongoing healthy growth in the production of business equipment, suggesting that exports will continue to perform well and/or that US business investment is picking up again. The industrial production figures complement the signs from retail sales and housing starts that point to an ongoing positive underlying trend in consumption and residential construction.
The assessment of the growth contribution from inventory investment has also fundamentally improved. With full figures on business inventories in the first quarter now available, it is plain that that the scale of the inventory buildup in the provisional estimate of first-quarter GDP was clearly overstated. Mainly for this reason, the (annualized) real GDP growth rate is likely to be reduced from 2.2% to 1.8%. But this reduces the likelihood of a negative growth contribution from inventories in the current quarter, presuming that companies don’t sharply downgrade their sales expectations. All in all we see a good chance that GDP growth can reach 2¼-2½% (annualized rate).