Riding the See-Saw of Economic News

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.

This week’s economic news took us on a real see-saw ride, dropping us down and bringing us right back up. So, let’s take a closer look at the most important ups and downs of the week right now.

Down: Q1 GDP Growth

On Friday, the Labor Department released its flash estimate of first-quarter GDP growth, which comes in at an annual pace of 0.7% .That’s down from an annual pace of 2.1% in the fourth quarter and below economists’ consensus estimate of 0.9%. A drop in government spending (a 1.7% decline) and deceleration in consumer spending (from a 3.5% annual pace to just a 0.3% annual pace) was cited by the Labor Department as the primary reason first-quarter GDP growth slowed dramatically.

Tax refund checks being delayed clearly hindered consumer spending as well, since retail sales declined in February and March. Furthermore, a slowdown in vehicle sales and other big-ticket items also impacted first-quarter GDP growth. However, first-quarter GDP calculations are often distorted by seasonal adjustments that economists criticize. Interestingly, economists are expecting second quarter GDP growth to grow at least a 3% annual pace. In the meantime, the good news is the slow first-quarter GDP growth will likely help keep Treasury bond yields artificially low, which should help to further support higher stock prices.

Up: New Home Sales

On Tuesday, the Commerce Department reported new home sales rose 5.8% in March to an annual pace of 621,000 homes, which was substantially higher than economists’ consensus estimate of 580,000. March’s new home sales was also the second highest monthly pace since early 2008. Only last July’s annual sales pace of 622,000 was higher. Median home prices in March rose to $315,000, up 7.5% compared to February, but only 1.2% higher than the same month a year ago. The inventory of new homes for sale declined to only 5.2 months, which means that median home prices will likely continue to rise.

Down: Consumer Confidence

Naturally, higher home prices also tend to boost consumer confidence. Interestingly, though, the Conference Board on Tuesday reported that consumer confidence slipped to 120.3 in April compared to March’s 16-year high reading of 124.9. Since March’s consumer confidence was extremely high and tax refund checks were delayed, I don’t think we should worry about April’s lower reading. First quarter GDP growth is now estimated at only a 1% annual pace, but due to continued high consumer and business confidence, second quarter GDP is expected to accelerate into the second quarter.

Up: Durable Goods Orders

On Thursday, the Commerce Department announced that durable goods orders rose 0.7% in March, which was below economists’ consensus estimate of 1.4%. Even though March durable goods came in below expectations, durable goods have risen for three consecutive months and business investment has risen for six consecutive months. Furthermore, February durable goods orders were revised up to a very healthy 2.3% gain, up from 1.8% previously estimated.

Also notable was that orders for military planes surged 26% in March, so defense spending was partially responsible for this increase in durable goods orders. Excluding commercial and military aircraft, durable goods orders declined 0.2% in March. The shipment of core capital goods rose 0.4% in March, so overall, the details of the March durable goods report were encouraging.

That’s all I have for you this week; I’ll be in touch again next week with the latest ratings updates out of Portfolio Grader.

Have a great weekend,

Louis Navellier

Louis Navellier

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