US: Breadth of the economic recovery remains narrow - Wells Fargo

Analysts from Wells Fargo, see the US elections and the new administration as an uncertainty source. They continue to see growth picking up during the second half of the year but still with some limitations. 

Key Quotes: 

“Elections and the entry of a new administration bring the uncertainty of change. After a very raucous election cycle, the economic issues will remain and the discord between parties is likely to persist as policymakers get back to work. This presents a high level of uncertainty among decision makers.”

“While we expect the pace of economic growth to pick up in the second half of this year, the breadth of the recovery remains narrow—the consumer and housing will lead the way, while the tensions of gradually rising inflation, a Fed move and weak profits set a ceiling on the pace of improvement. A stronger U.S. dollar and still disappointing global growth limit the gains in trade beyond the current quarter.”

“We expect real economic growth of 2.2 percent for the current quarter with real final sales at a comparable 2.3 percent. For the year ahead, we expect improvement in business equipment spending, non-residential construction and less of a drag, or even a modest gain, from inventories.”

“Inflation is expected to continue its slow drift upward toward   percent, but will this pace provide enough for the FOMC to follow its intentions of one rate increase in December and two more in 2017? We expect the Fed to increase the federal funds rate one quarter percentage point at its December 13-14 FOMC meeting. Our yield curve expectations going forward are for a flatter curve (2y/10Y) compared to current measures. Profit growth is expected to recover to positive territory in 2017.”