April showers have been raining on U.S. economic data; it looks a bit soggy as we close out the month. GDP increased at a weaker-than-expected 2.5 percent annualized rate in the first quarter as weather played an outsized role. Colder than normal conditions of the first quarter appear to have put a damper on business investment, which grew at an unimpressive 2.1 percent rate. Inventories showed a big swing, declining by $47 billion ($2005) in the fourth quarter, and then growing by $37 billion in the first quarter. Inventories added about 1 percent to real GDP growth in Q1. The inventory swing came partially as a result of Hurricane Sandy depressing industrial production in the fourth quarter of last year, and partially as a result of last summer’s drought which caused a drawdown in agricultural inventories, which are now being built back up. Hurricane Sandy also skewed car sales late last year, making first quarter consumer spending look better than it really was. The other big mover in the GDP report was government spending which declined at a 4.1 percent annualized rate.
In the first quarter GDP data we see the whole (headline number) as definitely stronger than the sum of the parts. In the GDP report, it is the parts that mailer. The parts in the first quarter GDP report are indicative of an economy that remains hobbled and is not well poised to accelerate into mid-year. Business investment, normally an accelerator to GDP in the early stages of an economic recovery, was not much of an accelerator in the first quarter, and it was not much of an accelerator in Q2 and Q3 last year. So, for three out of the last four quarters business investment has not engaged normally. The first quarter lull in business investment was roughly coincident with the current lull in loan demand. Without that accelerator, the economy will feel cooler than suggested by headline GDP.
Initial claims for unemployment insurance fell to 339,000 for the week ending April 20. This points to a firmer number for April payroll employment than the weak +88K we saw for March. New orders for durable goods fell in March by 5.7 percent. Transportation is largely, but not exclusively, to blame for the recent volatility in this series. Ex-tran durable goods orders dipped by 1.4 percent in March. Commercial aircraft orders were off 48.2 percent.
Housing indicators for March have been mixed. New home sales increased by 1.5 percent and appear to be set to continue their upward trend. Existing home sales for March declined by 0.6 percent. They look a bit flat, essentially unchanged since last November.
For a PDF version of this Comerica Economic Weekly with tables and charts, click here CMAEconWeekly042613 .