It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let’s take a look at this week’s big headlines:
In April, the Conference Board’s consumer confidence index ticked down to a reading of 82.3, below economists’ estimates of 83.5. The expectations index hit 84.9 in April, its highest reading in eight months. The current conditions index dipped to 78.3, down from 82.5 last month. Meanwhile, March’s headline index reading was upwardly revised from 82.3 to 83.9. While the reading was below expectations, the past two months still have brought us the strongest levels of consumer confidence since January 2008. I also like seeing that the expectations index is on the rise—this bodes well for consumer spending in the second half of the year.
First-Quarter GDP (Advance Estimate)
The U.S. economy grew at a 0.1% annual pace in the first quarter. This was significantly lower than economists’ consensus estimate of a 1% annual pace. Several factors weighed on first-quarter GDP, including a poor housing sector, cooling business spending, dwindling inventories and a higher than expected trade deficit. However, there were also some positive details in the GDP report. Consumer spending rose a healthy 3% in the first quarter, and spending on services surged an even more impressive 4.4% (the largest increase in services in nearly 14 years). Wall Street took the disappointing first-quarter results in stride because things are expected to warm up for the second quarter. In fact, most components, including consumer spending, business spending, government spending, manufacturing activity, inventories and trade are all expected to positively contribute to second-quarter GDP growth. And due to pent-up demand after the harsh winter, even the soft housing sector is expected to rebound in the second quarter. Due to the spring thaw and the fact that businesses and consumers will be playing catch-up, I am expecting about 3.8% annualized second-quarter GDP growth.
Initial Claims for Unemployment
For the week ended April 26, jobless claims jumped 14,000 from last week’s revised level of 330,000 to 344,000. This surprised economists, who on average had predicted that initial unemployment claims would fall to 320,000. Meanwhile, the four-week moving average ticked up 3,000 to 320,000. Despite the near-term rise in claims, average layoff activity for the months of March and April remain at the lowest level since 2007. The renewed strength of the jobs market was displayed in later Unemployment Rate report.
In March, personal income rose 0.5%, meeting economists’ expectations. Notably, this is the strongest gain in personal incomes since August. Meanwhile, consumer spending jumped 0.9%, above economists’ predictions of a 0.7% rise. Even after adjusting for inflation, real spending also rose 0.7%, representing the largest increase since August 2009. The savings rate also fell to the lowest level since August 2008. This is great news, and proof positive of the spring rebound. During the winter, the big consumer spending gains came from spending on utilities and healthcare; now we’re starting to see consumers branch out into buying nondurable goods and spending on services. This should help create sustainable GDP growth in the coming quarters.
In March, spending on construction projects increased 0.2%, less than economists’ projections of a 0.3% gain. February construction spending was revised lower to reflect a 0.2% drop, down from the previously stated 0.1% rise. In March, apartment construction spending jumped 4.3% while single-family home spending ticked up 0.2%. The biggest drag was government spending, which fell 0.6% on reduced school and educational building construction. Even with the lukewarm results for March, residential construction spending is at a five-year high. And the construction projects that were stalled by the harsh winter should heat up in the next few months.
Unemployment Rate Report
In April, 288,000 payroll jobs were created, well above the 215,000 in jobs forecasted by economists. Meanwhile, the payroll numbers for March and February were revised higher by a total of 36,000 to 203,000 and 222,000, respectively. Also big news was that the unemployment rate fell from 6.7% in March to 6.3% in April, due to 806,000 workers leaving the workforce. Economists had expected the unemployment rate to inch down to 6.6%. The jobs report gives credibility to the Federal Reserve’s increasingly sunny outlook. However, the labor force participation rate being at a 35-year low remains a sore subject for the jobs market, so there is still plenty of room for improvement.
Factory Goods Orders
In March, orders for factory goods rose 1.1%. This was less than expected, as economists had expected orders to advance 1.5%. March saw factory orders increase across all categories. Orders for non-defense capital goods (excluding aircraft) jumped 3.5%. February’s orders were revised lower to reflect a 1.5% gain, down from the previously reported 1.6% increase. This was a solid report to end the week on. Especially encouraging was the fact that non-defense capital goods (excluding aircraft) rose by the highest amount since January 2013. This is a common measure of business confidence, so this is a good sign for business activity heading into the second half of 2014.
Have a nice weekend,