Comerica Economic Weekly

The forward-looking data from this week were positive. The backward-looking numbers, not so much.

U.S. real GDP growth for Q1 was revised to a -0.7 percent annual rate, about as expected. This is a backward looking number, and a number that has become controversial among data gnomes. Some argue that the seasonal adjustment factors of the components of GDP were not calculated correctly and that we actually had a modest gain in Q1 real GDP. As they stand now, the official numbers from the Bureau of Economic Analysis show modest real consumer spending growth, weak business fixed investment, a moderate gain from inventories, a big drag from trade and weak government spending. With the second estimate of Q1 GDP comes our first look at Q1 corporate profits. They were weak, declining at a 5.9 percent annual rate. The backstory to today’s GDP numbers involves the labor dispute at California ports skewing the trade data, very bad weather and low oil prices dragging business investment and corporate profits.

U.S. consumers’ outlook was better in May according to the Conference Board’s Consumer Confidence Index. The index increased moderately to 95.4 after slumping to 94.3 in April.

New home sales for April increased by 6.8 percent to hit an annual rate of 517,000 units after declining sharply in March. New home sales are still very low compared to historical averages. However, the data for 2015 so far supports an upside breakout from the range-bound sales that we saw through 2013 and 2014.

The Case-Shiller 20-City Composite House Price Index for March increased by 1.0 percent. Solid house price appreciation is a major support to households, who are seeing the equity in their homes increase at a 9.9 percent year-over-year rate as of 2014Q4.

New orders for durable manufactured goods eased in April, down 0.5 percent after a strong 5.1 percent increase the month before. The “core” measure of new orders shows more stability in the manufacturing sector. New orders for nondefense capital goods excluding aircraft gained 1.5 percent in March and then gained another 1.0 percent in April.

The Richmond Fed reported flat manufacturing activity for May. The Dallas Fed said that Texas manufacturing activity fell sharply again in May.

Initial claims for unemployment insurance increased by 7,000 initial claims for the week ending May 23, to hit a level of 282,000. This is still a very good number, consistent with ongoing tightening in overall labor market conditions.

Oil prices eased through the week, falling below $57 on Thursday on renewed concern about overproduction. Oil remains a wildcard for Federal Reserve monetary policy. A significant drop in oil prices from here would drag on inflation, potentially delaying the much discussed first increase in the fed funds rate since June 2006.

For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 05-29-15.

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