First Quarter Growth Robust, Labor Market Softening Slightly, Housing Slows

- Preliminary 1Q GDP rose 5.3% versus estimates of a 5.8% increase and a prior estimate of a 4.8% gain.
- Preliminary 1Q GDP Price Index rose 3.3% versus estimates of a 3.3% increase and a prior estimate of a 3.3% gain.
- Preliminary 1Q Personal Consumption rose 5.2% versus estimates of a 5.6% gain and a prior estimate of a 5.5% increase.
- Preliminary 1Q Core PCE rose 2.0% versus estimates of a 2.0% gain and a prior estimate of a 2.0% increase.
- Initial Jobless Claims rose 329K versus estimates of 315K and 369K the prior week.
- Continuing Claims rose to 2420K versus estimates of 2405K and 2382K the prior week.
- Existing Home Sales for April fell to 6.76M versus estimates of 6.75M and 6.9M in March.

BOTTOM LINE: US economic growth rose at an annual rate of 5.3% in the first quarter, slower than forecast, Bloomberg reported. The rise in GDP was the biggest since the third quarter of 2003. A slowing housing market and weaker consumer spending should prompt the Fed to stop raising interest rates if data point to a smaller risk of accelerating inflation, according to economists. Morgan Stanley revised their 2Q GDP forecast to 2.8% from 2.9% on the report. Exports added 1.47 percentage points to first-quarter growth. Business fixed investment grew at an annual pace of 14.3% versus a 4.5% increase the prior quarter. I continue to believe US growth is slowing from the scorching 5.3% of the first quarter back down to average rates through year-end.

First-time claims for unemployment benefits in the US fell last week as employees in Puerto Rico returned to work following a temporary shutdown of government offices, Bloomberg said. The unemployment rate among those eligible to collect benefits, which tracks the US unemployment rate, rose to 1.9% from 1.8% the prior month. The four-week moving-average of claims rose to 337,000 from 333,750. I continue to expect the labor market to remain relatively healthy over the intermediate-term without generating substantial unit labor costs increases.

Sales of previously-owned homes in the US fell last month, reinforcing expectations that a slowdown in housing will help cool economic growth this year, Bloomberg said. Compared with year-ago levels, sales fell 5.7%. The median price of an existing home rose 4.2% to $223,000 from year-ago levels. The supply of homes for sale at the current pace rose to 6 months from 5.6 months in March. Recent housing data makes me more optimistic that the market is slowing to more sustainable healthy levels. A “soft landing” in housing still appears to be the most likely scenario.