It is true that wage growth has been slow to materialise and that the increase in spending has not been as high as expected. But there are signs that this is starting to change, and even accelerate. The fourth-quarter GDP release showed a marked increase in personal consumption of 4.3 per cent, accounting for the bulk of the 2.6 per cent headline economic growth figure.
While not all the higher-frequency economic data is pointing in the right direction, GDP numbers suggest that the US economy is in pretty solid shape, with conclusive proof that consumers are dipping into their pockets to spend. This backdrop, coupled with a continued increase in wages, could lead to a summer rate hike by the Fed. The knock-out punch is still to come, but the Fed may yet win this fight.
Kerry Craig is global market strategist of JP Morgan Asset Management
