Although some economic data have come in as a disappointment recently, the US economy should continue to post moderate growth.

The US is actually likely to be among the industrial nations with the strongest economic growth in 2012. From a capital market perspective, the glass is therefore half full rather than half empty.

Our surprise indicator for the US has been pointing downwards for some time. This reflects the fact that most economic data have not met the expectations. We put this negative tendency down to special factors, at least in part, and the usual volatility of the monthly economic indicators. Overall, the moderate recovery should continue, supported mainly by rising profits and investment, and progress on the housing market.

Profits and investment are driving the economy
The usual self-reinforcing cycle is driving the US economy: corporate earnings are rising, making investment more worthwhile. Companies therefore need additional labour, so labor income is rising. This creates new scope for private consumption and business profit in turn from higher sales.

According to the national accounts, corporate earnings and capital expenditure lost some momentum in the first quarter. The latter was certainly due in part to the fact that businesses had brought investment forward to 2011 to benefit from the more favourable tax rules up to the end of the year. These orders were therefore lacking at the start of 2012.

The positive cycle would only be in danger, though, if monetary or financial policy significantly dampened growth or a shock from outside the US were to knock the US economy. Tighter monetary policy is not on the agenda in the foreseeable future. On paper, fiscal policy could be a huge burden at the start of 2013, when various temporary tax reductions expire and the automatic budget cuts passed in 2011 take effect. That said, after the presidential elections in November, those in power are likely to correct these points to a substantial degree. The unresolved sovereign crisis in the eurozone is therefore still the greatest risk for the US economy.

Progress in correcting imbalances
Furthermore, the US is making progress in tackling the bubble that burst on the housing market. Problems in the banking sector are now less of a hindrance to financing investment. The last quarterly report on the lending criteria of banks (Senior Loan Officer Survey) shows that US banks have loosened their lending standards somewhat. Furthermore, banks report a rising demand for loans. Commercial and industrial loans have
recently expanded at a two-digital annual rate.

Lastly, the unprecedented shrinking process in the US residential construction should now
be over. Amid an oversupply of properties, economic output in this sector halved between
the closing quarter of 2005 and the first quarter of 2011. This cost the total economy four
percentage points in growth. Since then, residential construction has been expanding
again.