Q1 GDP 2nd Estimate, May ADP Employment, UI Claims, March House Prices

Soft Numbers Point to Sluggish Start for the Summer

  • Real Gross Domestic Product growth for 2012Q1 was reduced to 1.9 percent in the second estimate.
  • The ADP Employment Report showed an increase of 133,000 private-sector jobs for May.
  • Initial Claims for Unemployment Insurance increased by 10,000 for the week ending May 26, to 383k.
  • The Case-Shiller 20-City House Price Index increased by 0.1 percent in March.

Economic data released so far this week point to another sluggish start for the summer. The second estimate of real GDP growth for 2012Q1 was dialed down to 1.9 percent, with a little less consumer spending being the lead culprit in the revision. Warm weather may have been a contributing factor as consumer spending on services, which includes home utility bills, was reduced. The U.S. economy still has forward momentum, but with sub-2 percent real GDP growth and sub-150,000 per month net job creation, that momentum now looks to be something less than desired.  Ongoing drags to business confidence stemming from the fears of devolution in the euro-zone and from the approaching “Fiscal Cliff,” scheduled to hit in early 2013, may be sapping job growth, which now appears to be well below its strong 253,000 jobs per month average pace of last December through February. We will get the official reading on May job growth tomorrow morning when the BLS issues its monthly report. The ADP employment report, which estimates private-sector job growth, registered a gain of 133,000 for May. If we assume that the ADP estimate is spot on with the BLS number, and we lose about 7,000 government jobs (that is the average for the last three months), then we have an estimate of 126,000 net payroll jobs created for May as reported by the BLS. 126k is better than nothing, but it falls well short of being an indicator of a vigorous labor market and could leave the unemployment rate unchanged at 8.1 percent. An uptick in the weekly unemployment insurance claims numbers adds a little weight to the view that hiring has dialed down from earlier this year. Initial claims increased by 10,000 to 383,000 for the week ending May 26. That is not a terrible number by any means, but it is obviously not an improving number.

Complicating this week’s read on the economy, the Case-Shiller 20-City House Price Index has now improved for the last two months. The 20-City HPI for March gained 0.1 percent, after increasing by 0.2 percent in February. Of the 20 cities surveyed in March, 16 showed flat or increasing prices. Atlanta, Chicago, Detroit and Minneapolis showed price declines. A turning point in housing markets is increasingly visible, with better pricing, more sales and increasing construction. In order to sustain that momentum we will need to see moderate job growth this year and we will need to avoid a self-inflicted recession due to the fiscal cliff early next year.  Momentum in housing, lower gasoline prices and higher auto sales are all positive signs for the Main Street economy. Ongoing job creation would be the icing on the cake that confirms better conditions on Main Street that may prove to be resistant to headwinds from Washington and from abroad.

Market Reaction: Equity markets are down. Treasury yields are also down. Oil is down to $87.45/barrel. The dollar is down against the yen and the euro.

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