US economic growth is expected to hold steady at a 2%-plus pace in the second quarter, according to the median nowcast from several estimates compiled by CapitalSpectator.com. This early estimate for the current quarter suggests that the economy may be more resilient to the effects of the Middle East conflict than previously assumed.
The main threat is inflation, which jumped sharply in March and is expected to rise further in tomorrow’s April report from the government, based on the outlook for the year-over-year trend. The concern is that as the energy supply shock continues to reverberate, growth will suffer.
The current median nowcast for Q2, however, suggests that real (inflation-adjusted) output will be largely unchanged relative to Q1. Today’s estimate indicates a 2.2% annualized increase for Q2, modestly above the 2.0% rise reported for Q1, which marked a solid recovery from Q4’s weak 0.5% gain.
Uncertainty surrounding the Iran war—currently in a precarious state of peace—still leaves plenty of room for debate about how the remainder of the quarter will unfold, and whether the current nowcast will hold. A bright spot is the labor market. US hiring rose more than expected in April, suggesting that the economy may be more resilient to the conflict than previously estimated.
The gain in employment is “evidence of the underlying resilience of this economy and of this labor market, despite all of the slings and arrows of outrageous concerns about the Middle East and unemployment and inflation and the Fed,” said Scott Clemons, chief investment strategist at Brown Brothers Harriman. But “one month does not a new trend establish. There’s been a lot of month‑to‑month volatility in the jobs market over the past year. I’m not sure that’s completely gone away. We get another two or three months of solid job gains, then I feel a little bit more comfortable.”
Comfort will likely be in short supply as long as the threat of war hangs over the Middle East and energy exports from the Gulf remain blocked.
President Trump on Sunday rejected Iran’s latest proposal to end the war, writing on social media that it was “TOTALLY UNACCEPTABLE!”
The data may be steady, but the backdrop is anything but. The coming months will reveal whether the economy can outrun the shadows gathering overseas.
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