Comerica Economic Weekly

U.S. economic data released at the end of March remain consistent with our expectation that indicators will generally improve this spring as weather renormalizes. We expect to see an ongoing moderate economic expansion for this year, after a weak first quarter. Real GDP growth for the nearly complete 2014Q1 is expected to be somewhat muted, obscuring more positive elements of the economy. Three factors will keep 2014Q1 real GDP growth below potential. First, was the weather, which dragged on almost all economic series this winter, including job creation and auto sales. Second, is the drag from federal spending. The good news is that last fall’s two-year budget deal put some money back in the coffers for federal discretionary spending this year, but we will still see a drag from federal discretionary spending through the first half of this year. Third, is the expected inventory correction. Inventory accumulation significantly boosted GDP growth through the second half of 2013. This cannot continue indefinitely. There will be a correction, but we do not know exactly when it will happen. We expect to see some drag from inventories in 2014Q1.

Personal income growth for February was moderate, increasing nominally by 0.3 percent. Wage and salary growth was subdued at 0.2 percent for the month, reflecting weak job gains this winter. After adjusting for inflation, real consumer spending increased by 0.2 percent, consistent with the slight uptick that we saw in unit auto sales for February.

Consumer attitudes are going in two directions at once. According to the Conference Board, consumer confidence for February improved, continuing the upward trend in that series visible since last November. However,  according the University of Michigan, consumer sentiment dipped slightly in March.

Real GDP growth for the fourth quarter of 2013 was revised up slightly to 2.6 percent from 2.4 percent. This is largely a backwards looking revision with only minor implications for our 2014 outlook.

Initial claims for unemployment insurance dipped by 10,000 for the week ending March 22, to hit 311,000. This is a level consistent with ongoing moderate job creation. Continuing claims fell by 53,000 for the week ending March 15, reflecting the rollback of extended unemployment insurance benefits.

New home sales for February eased by 3.3 percent to hit a 440,000 unit annual rate. This came after a stronger-than-expected January report. The Pending Home Sales Index for February dipped by 0.8 percent. The Case-Shiller 20-City Composite House Price Index for January showed 13.2 percent year-over-year growth. On a monthly basis, prices fell in 12 out of the 20 cities. Housing markets remain tight in most cities.

New orders for durable goods increased by 2.2 percent in February. Commercial aircraft orders climbed after falling through December and January. Total shipments of durable goods also improved in February.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly032814.

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