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• Real economic activity disappointed in the first half of the year, a shortfall largely attributed to personal consumption growth deceleration.
• The weakness of the US consumer is, in our view, due to the continuing labor market slack, the erosion of household net worth and heightened economic uncertainty.• We expect a rebound in real consumption growth in Q3 from the weak pace recorded in Q2, due to the fading effect of Japanese-related automotive supply disruptions and higher oil prices.
• However, the automatic tightening of fiscal policy, combined with a weak labor and housing market, implies that consumption growth will be modest relative to historical averages for years to come. Our estimates include a 2.1% y-o-y consumption growth in 2011 and 1.6% in 2012.