- Advance 1Q GDP rose .6% versus estimates of a .5% gain and a .6% increase in 4Q.
- Advance 1Q Personal Consumption rose 1.0% versus estimates of a .7% increase and a 2.3% gain in 4Q.
- Advance 1Q GDP Price Index rose 2.6% versus estimates of a 3.0% gain and a 2.4% increase in 4Q.
- Advance 1Q Core PCE rose 2.2% versus estimates of a 2.2% increase and a 2.5% gain in 4Q.
- The 1Q Employment Cost Index rose .7% versus estimates of a .8% gain and a .8% increase in 4Q.
- The Chicago Purchasing Manager Index for April rose to 48.3 versus estimates of 47.5 and a reading of 48.2 in March.
- The ADP Employment Change for April was +10K versus estimates of -60K and +3K in March.
BOTTOM LINE: The US economy expanded at a .6% annual pace in the first quarter, Bloomberg reported. The Fed’s preferred inflation gauge, the core pce, rose at a 2.2% pace, down from 2.5% in 4Q. Investment in residential construction projects fell at an annual rate of 27% during the quarter, the most since 1981. The decline subtracted 1.23 percentage points from GDP. Housing has subtracted from growth since 1Q of 2006. Companies built back depleted inventories slightly at a $1.8 billion annual rate during 1Q, after an annualized decline of $18.3 billion in 4Q. Inventory re-building added .8 percentage point to growth last quarter. The trade deficit narrowed to an annual pace of $495.9 billion last quarter from $503.2 billion during 4Q. The smaller gap added .2 percent to growth. The ADP Employment report, also released today, showed companies unexpectedly added 10,000 jobs this month. Estimates ranged from a drop of 115,000 to a decline of 20,000. The ADP report only takes into account private employment and does not factor in government hiring. The report showed service providers added 64,000 workers, while construction jobs fell by 28,000. Employment at financial institutions surprisingly rose by 2,000. Small companies added 42,000 workers, while large ones pared their workforces by 18,000. According to Intrade.com, the odds the US enters recession this year are plunging to 31% today from 79% last month. I expect Friday’s jobs report to also exceed estimates of -75K. Many of the bears that currently dominate investor/media psychology in today’s “US negativity bubble” have been saying for over two years the US economy was plunging into a very bad recession and bear market. The DJIA is now only 7.4% from its all-time high. I still expect fiscal/monetary stimuli, a stronger US dollar, lower energy/food prices, decelerating inflation, better consumer sentiment, an improving job market, rising stock prices, less housing-related fear, an end to the credit market turmoil, relatively low interest rates, an end to the election uncertainty and an end to the American Axle strike to boost the economy further over the coming months.
The Chicago PMI, a measure of US business activity, rose slightly and came in above economists’ estimates in April, Bloomberg reported. The Employment component of the index fell to 35.3 from 44.6 the prior month. The New Orders component fell to 53.0 from 53.9 the prior month. The Inventories component rose to 51.9 from 42.0 the prior month. The Prices Paid component fell to 82.9 from 83.9 in March. Carmakers have been at the center of the decline in manufacturing. The American Axle strike has resulted in GM(GM) partially idling or temporarily closing 30 plants in North America. I expect the Chicago PMI to begin showing expansion again over the coming months on improving demand, an end to the strike and further inventory re-building as companies gain more confidence that the economy is not tipping into recession.
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