This week, we were hit by a tidal wave of U.S. economic reports from both private sources as well as governmental agencies. Now, I understand that not everyone enjoys staring at pages of economic data as much as I do, so in today’s blog post I cover just the highlights of these market moving reports. Let’s take a look.
The American Consumer
In March, personal income climbed 0.2%, or $30.9 billion. This came below economists’ expectations of a 0.4% rise. And while personal spending also advanced 0.2%, $21.0 billion, economists had expected the measure to remain flat. Perhaps the best news was that February personal income and spending were revised up: In February, income increased $151.2 billion, or 1.1%, and spending jumped $81.6 billion, or 0.7%. With the latest data, the January—March quarter saw the biggest gain in consumer spending in more than two years. This is encouraging, especially considering that nearly every American was hit with higher Social Security taxes in January.
In April, the Conference Board’s consumer confidence index surged to a reading of 68.1, up from 59.7 in March. This trumped expectations; economists had expected a reading of 63. The primary driver was the consumer expectations index, which surged nearly 10 points to a reading of 73.3 in April. Interestingly, 37.1% of consumers polled by the Conference Board said that jobs are “hard to get” in April, up from 35.4% in March. Overall, the surge in consumer confidence was very good news. I’m hoping that this will create a snowball effect where increased confidence drives higher consumer spending and this in turn boosts second-quarter GDP growth.
The U.S. Housing Market
In March, construction spending fell 1.7% to an annual rate of $857.72 billion. This represents the lowest level since August and underperformed expectations of a 0.7% rise. The culprit was continued declines in government activity: At the state and local level, spending fell 4.2%; at the federal level, spending declined 1.7%. Meanwhile, private residential construction climbed 0.4%.While the headline figure wasn’t pretty,the construction spending picture isn’t all that bleak. To keep things in perspective, even accounting for the recent weakness construction spending has gained 4.8% over March 2012. While the government remains a drag on construction activity, the private sector is pulling its weight. Remember, U.S. homebuilders started construction on more than one million homes in March—that’s the first time housing starts have broken seven figures in five years!
The Jobs Picture
Last week, jobless claims plunged 21,000 to an annual rate of 324,000. This broke through a five-year low, beating economists’ expectations that claims would rise to 346,000. Meanwhile, the four-week moving average fell to a rate of 342,250—a six week low. As I’ll discuss with the Unemployment Rate report shortly, this week brought plenty of positive news for the U.S. labor market. I’ll be interested to see if these data are revised up next week, but the four-week moving average should be giving us a good sense of what to expect in terms of layoffs.
In April, employers added 165,000 new jobs. This came well above the consensus estimate, which called for 135,000 new payroll jobs. Also significant was that February and March payrolls were revised 114,000 higher to 332,000 (up from 268,000) and 138,000 (up from 88,000), respectively. The official unemployment rate dipped to 7.5% and is now at the lowest level since December 2008. While the improvement in the official unemployment rate was encouraging, I cannot neglect to mention an important fact that was glossed over by much of the media. The broader U-6 unemployment rate, which includes underemployed and discouraged workers, rose to 13.9% in April. If more people that are seeking work continue to enter the labor force like they did in April, it could very well drive the official unemployment rate higher in the coming months.
U.S. Trade Gap
In March, the trade deficit narrowed by 11% to $38.8 billion. Economists had expected the gap to narrow, but only to $42 billion. Instead, imports fell 2.8% to $223.1 billion on a 4.4% plunge in foreign petroleum. Exports also fell, but by just 0.9%, to $184.3 billion on slower machinery and auto sales. Interestingly, crude oil imports are now at their lowest level since 1996 and the U.S.’s trade deficit with China is at a three-year low. So it’s clear that the country’s growing energy independence is doing its part to reduce the trade gap.
The Private Sector
In March, factory goods orders fell 4%. This was a steeper drop than forecast; economists had called for a 2.5% decline. Meanwhile, February factory orders were revised lower. While the previous report indicated a 3% rise in orders, that has since been revised down to just a 1.9% rise. However, when you exclude the volatile transportation category, orders fell just 2% in March. And when accounting for non-defense capital goods (excluding aircraft), orders rose 0.9%.Just as we saw with last week’s durable goods orders report, the aircraft industry and the larger transportation category weighed down the headline figure. So while this may have negative implications for first-quarter GDP growth, there is a silver lining. First, I’m encouraged that non-defense capital goods gained 0.9%—this is an important proxy for business spending plans. Second, the general expectation is that manufacturing will bounce back in the second half of the year.