Thursday, May 29, 2008

US Growth Revised Higher, Initial Jobless Claims Stable

- Preliminary 1Q GDP rose .9% versus estimates of a .9% gain and prior estimates of a .6% rise.

- Preliminary 1Q Personal Consumption rose 1.0% versus estimates of a 1.0% gain and prior estimates of a 1.0% rise.

- Preliminary 1Q GDP Price Index rose 2.6% versus estimates of a 2.6% gain and prior estimates of a 2.6% rise.

- Preliminary 1Q Core PCE rose 2.1% versus estimates of 2.2% and a prior estimate of a 2.2% gain.

- Initial Jobless Claims for this week rose to 372K versus estimates of 370K and 368K the prior week.

- Continuing Claims rose to 3104K versus estimates of 3080K and 3068K prior.

BOTTOM LINE: The US economy grew more than previously estimated in the first quarter as Americans shunned imports and exports climbed to another record, Bloomberg reported. Jeffrey Frankel, an economist at Harvard Univ. who is a member of the panel that dates US economic cycles, said in a Bloomberg Radio interview, “I wouldn’t rule out going into recession” later in the year. This statement implies that he doesn’t currently view the slowdown as a recession, in my opinion. The trade deficit shrank to an annual pace of $480.2 billion, the smallest since 3Q 2002. Trade’s contribution to growth jumped to .8 percentage point, which is four times more than previously estimated. The revisions also showed bigger gains in incomes than previously estimated. Personal Income increased at a 5.1% annual pace during 4Q versus a prior estimate of a 4.2% gain. For 1Q Personal Income growth was revised up to 4.7% from a prior estimate of 4.4%. The gain in growth last quarter would have been even greater if not for a decline in estimates for inventories. Companies cut inventories at a $14.4 billion annual rate versus an initial estimate of a $1.8 billion gain. Inventories added only .2 percentage point to growth, less than the previously estimated contribution of .8 percentage point. A measure of total sales, which excludes inventories, was revised to a gain of .7% at an annual pace rather than a .2% drop that was previously estimated. I expect 2Q GDP to easily exceed economists’ estimates of a .1% gain and growth to accelerate modestly into year-end on fiscal/monetary stimuli, lower commodity prices, decelerating inflation, an end to the American Axle strike, a firmer US dollar, inventory rebuilding, an end to the credit market turmoil, strong exports, diminishing housing fears and an improving job market.

The number of Americans filing first-time claims for unemployment benefits rose slightly last week, Bloomberg said. The four-week average of initial claims fell to 370,500 from 373,000 the prior week. Weekly claims have averaged 358,150 so far this year. During the mild recession of 2001, initial jobless claims averaged 415,600 a week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at a historically low 2.3%. I expect jobless claims to trend modestly lower through year-end.

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