GDP, CFNAI, Consumer Spending and Housing: What We Learned During the Week of June 22-26

Perhaps you have been distracted and didn’t follow U.S. economic data releases over the past week. Here’s what you missed during the week ending June 26.

Gross Domestic Product--Bureau of Economic Analysis
Gross Domestic Product–Bureau of Economic Analysis

1.While not as bad as previously thought, the U.S. economy contracted during the first quarter. The Bureau of Economic Analysis released its third estimate of first quarter Gross Domestic Product (GDP), which has the U.S. economy shrinking 0.2% on a seasonally adjusted annualized rate (SAAR) basis versus the 0.7% drop had been reported a month ago. The upward revision was the result of higher than previously estimated levels of exports and consumer expenditures. Among major segments of the economy, only consumption, the change in private inventories and fixed residential investment made positive contributions to economic activity. The rising U.S. dollar hurt export activity while business investment paused during the quarter. Further, corporate profits fell 5.2% during the quarter after having dropped 1.4% during the final 3 months of 2014. In all, harsh winter weather and the now settled West Coast port labor issues hurt economic activity during the opening months of 2015, but the consensus is that the slowdown was transitory. We will see the 1st estimate of 2nd quarter GDP growth on July 30th.

2. One economic indicator released last week finds below average economic growth during May. The Chicago Fed National Activity Index—a weighted average of 85 economic indicators—added 2-basis points during the month but remained negative for a 5th consecutive month at -0.17. The 3-month moving average improved by 4-basis points to -0.16. The negative reading is consistent with below average economic growth. Only 35 of the 85 tracked economic indicators made a positive contribution to the headline index with indicators related to production/income and consumption/housing being small drags on the economy. Meanwhile, indicators associated with employment made a positive contribution to overall business activity.

3. Consumer spending jumped in May, boosted by growing incomes. The Bureau of Economic Analysis estimates consumer spending grew 0.9% on a seasonally adjusted basis during the month, with a year-to-year gain of 3.6%. Spending on durable goods jumped a robust 2.2% while that for non-durables gained 1.9%. Spending on services inched up 0.3%. Personal incomes grew 0.5% for a 2nd straight month and were 4.4% above year ago levels. Wages also gained 0.5% during the month and were 5.0% above year ago levels. Some of the gain reflected a pick up in inflation—namely for energy goods—as the personal consumption expenditure (PCE) deflator grew 0.3%. Even after controlling for price gains, “real” consumer spending grew a still healthy 0.6% during May, with increases in spending of durable and nondurable goods of 2.3% and 0.9%, respectively. The savings rate inched down by 3/10ths of a point to +5.1%.

4. Housing sales blossomed in May. The vast majority of the housing market consists of transactions involving previously owned homes. The National Association of Realtors reported sales for that segment grew 5.1% during May to a SAAR of 5.35 million units (+9.2% versus May 2014), its fastest pace since November 2009. Sales grew during the month in all 4 Census regions, spanning for an 11.3% increase in the Northeast to a 4.1% gain in the Midwest. NAR’s press release stressed that “overall supply remains tight” and, as a result, prices are rising. More specifically, the inventory of unsold homes totaled 2.29 million units (SAAR) at the end of May, the equivalent to a 5.1 month supply. The median home price of $228,700 was 7.9% above year ago levels.

The other side of the market also enjoyed a pickup in activity. New home sales grew 2.2% during May to a SAAR of 546,000 units, up 19.5% from a year earlier. Sales increased during the month in the Northeast and West but declined in the Midwest and South. There were 206,000 new homes (SAAR) on the market at the end of May, matching April’s count and up 6.2% from a year earlier. This translated into a tight 4.5 month supply.

5. Consumer sentiment rebounded in June. The Index of Consumer Sentiment from the University of Michigan added 5.4 points during the month to a seasonally adjusted 96.1 (1966 Q1 = 100), its best reading since January when it had hit a post-recession high. The present conditions index surged 8.1 points to 108.9 (also its best since January) while the expectations index added 3.6 points to 87.8 (a 2 month high). The press release noted that “[c]onsumers voiced in the first half of 
2015 the largest and most sustained increase in economic 
optimism since 2004,” with strength seen across all major income cohorts. 
 The press release also noted that the results were consistent with a 3.0% growth in consumer spending during 2015.

Other reports released over the past week that you might find of interest:
Durable Goods Orders: May 2015: -1.8% (+0.5%, net of transportation goods)
Jobless claims: Week ending June 20, 2015: 271,000 (+3,000)

The opinions expressed here are not necessarily those of Kevin’s current, previous and future employers. No endorsements are implied.

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