U.S. economic data at the close of the first quarter was mixed, consistent with the view that economic momentum continued through the quarter, but conditions remain far from normal in part due to ongoing uncertainty about fiscal tightening and other regulatory issues. Manufacturing data remains generally positive, supported by gains in construction, automotive and energy-related sectors. New orders for durable goods gained 5.7 percent in March. This was a deceptively positive number, boosted by a rebound in both defense and nondefense aircraft orders. Core orders, nondefense capital goods excluding aircraft, fell by 2.7 percent in March after gaining 6.7 percent in February. The Dallas Federal Reserve’s Texas Manufacturing Outlook Survey was positive in March. The Richmond Fed’s Survey of Manufacturing Activity expanded in March, but at a slower pace than it did in February. The Chicago Purchasing Managers index ticked down in March, but was still in positive territory.
Housing-related data has been a bright spot for the U.S. economy. Both new and existing home sales have been on an upward trend. However, in February new home sales gave back some of their January gains. After surging to a 431,000 unit annual rate in January, new home sales relaxed by 4.6 percent to a 411,000 unit rate in February. Home prices continue to firm up. The Case-Shiller 20-City Composite House Price Index increased by 0.1 percent for the month. Over the previous 12 months the index was up 8.1 percent. All 20 city indexes are now in positive territory in year-ago comparisons.
Personal income increased by 1.1 percent in February, bouncing back from a 3.7 percent drop in January. The January drop in income came on the heels of a bounce in December as dividend payments were front-loaded ahead of tax hikes. The income data will clean up next month, responding more to economic fundamentals rather than to tax avoidance strategies. Real disposable income (after inflation and taxes) was up 0.7 percent in February. Real consumer spending increased by 0.3 percent in February, just as it did in January. The positive feedback loop between firming house prices and auto sales is helping there. Inflation was boosted by higher gasoline prices in February. The personal consumption expenditures price index for February gained 0.4 percent after flatlining for the previous two months. Excluding food and energy, the core PCE price index was up just 0.1 percent in February. There is still reason to be cautious about consumer spending due to conflicting consumer confidence readings for March. The Conference Board’s Consumer Confidence Index fell sharply in March after rebounding in February. However, the University of Michigan’s Consumer Sentiment index showed a slight improvement in March.
Real gross domestic product for the fourth quarter of 2012 was revised upward again to show 0.4 percent growth. Business fixed investment in structures was revised up, consistent with anecdotal reports of commercial property markets warming up. Inventories were a big drag on Q4 GDP, but will likely add significantly to first quarter GDP growth. This sets up a softer second quarter in terms of industrial production as inventory levels renormalize after Hurricane Sandy.
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