News

As we hoped, the US economy shows signs of resuming the growth we saw before bad weather in the early part of the year gave rise to fears that growth was slowing. The most recent unemployment release, for April, saw a sharp fall from 6.7% in March to 6.3%. At the same time 288,000 jobs were created, much better than the 218,000 expected by the market. Average hourly earnings grew by only 1.9%, suggesting that there is not yet a great deal of pressure in the labour market despite this fall in unemployment. As a pointer for the future however, the fall in the labour participation rate (the percentage of the population in employment or looking for work) indicates that some wage pressure may emerge further ahead.

This good news is reinforced by rising optimism in manufacturing and service companies, measured by the ISM (Institute for Supply Management) survey, which has risen into the mid 50s, implying a robust improvement. This suggests to us that company revenues will grow, while the increase in the number of people in employment should support consumer spending.

We remain optimistic that the consensus GDP growth figure in the US of 2.7% for 2014 can be exceeded. Business investment which grew by only 2.7% in 2013 is forecast to grow at 5.4% in 2014. If sentiment continues to improve, given the cash resources on corporate balance sheets, we believe this could prove to be conservative. We also expect a pick up in corporate mergers and acquisition (M&A) activity, which should also boost equity markets, following their lacklustre start to the year.