Q1 GDP Expected to Be Weak but Other Metrics Thawing Out
- The ADP Employment Report for March showed a moderate gain of 191,000 private-sector jobs.
- The ISM Manufacturing Index for March increased to 53.7 percent, inventories are a concern.
- March Auto Sales increased strongly to a 16.4 million unit annual rate.
- February Construction Spending inched up by 0.1 percent.
Forward-looking data is improving as the neo-Pleistocene weather conditions of the past winter moderate. Pent-up demand over the winter months for labor, houses, consumer items and many other goods and services is providing a quick thaw for frozen metrics. Backward-looking data for the winter is weak. We will put the soon-to-be released 2014Q1 GDP report in that camp. The first estimate of Q1 GDP is due out on April 30. We expect to see a weak real GDP growth rate of about 1.0 to 1.5 percent. The snap-back in March auto sales helped, but it is not enough to lift growth significantly. We expect to see drags from inventories and from federal spending combined with tepid overall consumer spending for the quarter.
The March ADP employment report showed a gain of 191,000 private-sector jobs for the month, stepping up from 178,000 in February and 121,000 in January. While this is still a first quarter number, it has positive implications for income and consumer confidence in the just-started second quarter. We are revising upward our expectation for Friday’s official Bureau of Labor Statistics employment report. We now expect to see 195,000 payroll jobs added in March and an unemployment rate of 6.6 percent. The ISM Manufacturing Index for March moved up to 53.7, still indicating improving overall manufacturing conditions. The employment sub-index remained positive at 51.1, consistent with small net job growth for the sector. The customers’ inventories sub-index was weak, slipping down to 42.0. This is consistent with the expected correction from the large run-up in inventories that we saw in the second half of 2013. March auto sales were a nice surprise, rebounding strongly from a 15.4 million unit rate in February, to a 16.4 million unit rate in March. The light truck component was strong for the month, with positive implications for residential construction going forward. Overall construction spending for February was still under the weather, gaining just 0.1 percent for the month. Total public construction projects, including transportation infrastructure gained 0.1 percent in February. Private nonresidential was up 1.2 percent and private residential construction spending declined by 0.8 percent. There is quite a wide statistical confidence interval around construction spending estimates, so one-month movements are not the most reliable of indicators. We expect to see gains in both private residential and private nonresidential construction spending over the course of this year.
Market Reaction: U.S. stock markets are responding positively to the better economic data. Treasury yields are up with the 10-Year T-bond rate at 2.80 percent. NYMEX crude oil is down to $99.06/barrel. Natural gas futures are down to $4.34/mmbtu.
For a PDF version of this Comerica Economic Alert click here: ADP 04-02-14.