US market intelligence: holding firm

Economic overview: growth remains resilient

Headline Gross Domestic Product surprised in Q2 2023 (increasing by 2.4 percent at an annualised rate), showcasing the durability of the US economy. However, headwinds remain.

Heightened volatility, increased uncertainty – particularly in the banking system – and tightening monetary policy are combining to slow momentum in the US economy.

Persistently high inflation, eating away at disposable incomes and curtailing consumer spending, also continues to impact economic performance. Inflation hit multi-decade highs of 9.1 percent in June 2022 but has since eased to 3.1 percent in June 2023.

The overall inflation transition is a welcome reduction. This, however, has come at a cost of a rampant increase in interest rates. While the benefit of pre-emptive decisions by The Federal Reserve (Fed) has brought inflation down, ramifications that are materialising are linked to banking stability.

However, there is a degree of optimism in how the US economy may handle turbulence moving forward. The Organisation for Economic Co-operation and Development's (OECD) latest economic forecast suggests that US GDP is projected to grow by 1.6 percent in 2023, ranking highly against other advanced economies.

Increased market fluidity presides over changeable market conditions

At current value, as of May 2023, construction spending has grown by 0.9 and 2.4 percent on the month and year respectively. Construction spending, however, is unequal and differences are emerging at a sector level.

Residential expenditure – once buoyed by low interest rates and easy access to capital – has now declined for three consecutive quarters as financial conditions tighten.

Fiscal prudence is also having a similar effect on commercial markets, with spending in the commercial sector 0.6 percent down over the first three months of 2023. Warehouse expenditure remains healthy, supported by bourgeoning e-commerce activity.

Increased spending in advanced manufacturing facilities is also a bright spot, spurring the manufacturing sector to double-digit growth for the second time in three quarters. Still, construction spending growth is easing, and while the market is robust, it is losing steam.

Escalation challenges easing

At a national level, escalation hit highs of 8.8 and 9.3 percent in 2021 and 2022 respectively, following a shallow increase of 2.8 percent during 2020 where COVID-19 infected the market. In the years after, surging activity, growing volatility and widespread input strains contributed to elevated escalation.

Bid prices, however, may have peaked, and escalation should ease in the coming years with our central forecast depicting growth of 5.0, 3.6 and 3.0 percent on average in 2023, 2024 and 2025 respectively.

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