Data released in the last week of February are consistent with a winter soft patch, induced in large part by the brutal winter weather conditions gripping much of the country. Fortunately, we are also seeing signs that there is a current of momentum in the U.S. economy underneath the snow and ice.
Fourth quarter 2013 real GDP growth was revised down to 2.4 percent, following the preliminary estimate of a 3.2 percent growth rate. Real consumer spending was revised down from a strong 3.3 percent growth rate to a still-good 2.6 percent rate. Nonresidential fixed investment was revised up, as was residential fixed investment. Exports were trimmed and imports were boosted, so net trade was not as strong as originally thought. Inventory growth in 2013Q4 was dialed down, but still remains very strong. Two consecutive quarters of very strong inventory growth in the second half of 2013 still point to a drag from inventories in the first half of 2014. Government spending, both federal and state/local, was reduced. Without the self-imposed drag from government spending, fourth quarter GDP growth would have been 1.05 percentage points higher.
Housing-related data has been mixed. Construction is obviously impacted by the weather. House prices continue to firm up. Almost all of the 20 cities in the Case-Shiller 20-City Composite House Price Index showed monthly gains in December. Only in Cleveland did prices dip, down 0.2 percent for the month. Over the previous 12 months the 20-city index was up 13.4 percent. New home sales for December were a surprising positive, up 9.6 percent for the month, to a 468,000 unit annual rate. This was the best sales rate for new homes since July 2008. Months’ supply of new homes tightened up to 4.7 months’ worth. There remains significant upside potential for new home sales. They could easily double from the current still-depressed rate as credit availability improves, incomes increase, confidence climbs and the rate of household formation renormalizes.
New orders for durable goods decreased by 1.0 percent in January, after falling by 5.3 percent in November. Always-volatile commercial aircraft orders have been a drag. The core measure of new orders, which is nondefense capital goods excluding aircraft, increased by 1.7 percent for the month.
Initial claims for unemployment insurance increased by 14,000 for the week ending February 22, to hit 348,000. Continuing claims ticked up as well. Claims data remain range-bound, likely supported by bad weather conditions this winter.
The University of Michigan Consumer Sentiment Survey showed a small improvement in February as the index ticked up to 81.6. Consumer expectations for future conditions continue to trend up.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly022814.