This week’s economic scene was dominated by what did not happen. The Federal Reserve did not clear the fog around interest rate expectations. First quarter GDP, March personal income and the April ISM MF Index did not do much of anything. The sky did not fall.
The Federal Open Market Committee concluded their April 28/29 meeting with a policy announcement that did little to shape expectations for interest rate lift-off. There was no attempt by the FOMC to focus expectations for the date of interest rate lift-off. We believe that they will be unable to reach a consensus view by June, and that pushes our expectation for interest rate lift-off back to September.
True to pattern, real GDP growth for the U.S. was weak in 2015Q1, increasing at a meager 0.2 percent annualized rate. Weather was undoubtedly a factor weighing on auto sales and construction. The dockworkers’ strike at California ports was a drag. State and local government spending dipped at a 1.5 percent annual rate. The good news in the report is that components of GDP that were suppressed in Q1 are likely to bounce back in Q2. The not-so-good news is that inventory accumulation surged in Q1, adding 0.74 percent to GDP growth. Without the inventory surge we would have seen a decline in GDP. We are now set up for a drag from inventories later this year.
The Case-Shiller house price index for the U.S. increased by 0.4 percent in February. Over the 12 months ending in February, the U.S. HPI is up 4.2 percent. We expect the spring residential real estate season to show increased activity, supporting prices in most markets.
The Conference Board’s Consumer Confidence Index fell to 95.2 in April. The slump in consumer confidence coincides with the weak March jobs report, increasing gasoline prices and a shaky stock market.
Personal income in the U.S. was unchanged in March, contributing to the weak performance of Q1 GDP. Wages and salaries increased by a tepid 0.2 percent, consistent with mediocre payroll job gains for the month. Offsetting the wages gains were declines in asset income. Nominal consumer spending increased by 0.4 percent in March as car sales rebounded. The gain in spending, with income flat, pulled the personal saving rate down from 5.7 percent in February to 5.3 percent in March. The PCE price index climbed by 0.2 percent in March and is up just 0.3 percent over the past year.
The employment cost index for 2015Q1 continued to trend up, showing that both wage rates and benefits are climbing. This will support stronger income gains in the months ahead.
Initial claims for unemployment insurance fell by 34,000 for the week ending April 25, to hit 262,000, the lowest since April 15, 2000.
Construction spending dipped by 0.6 percent in March with declines in most major categories.
The ISM MF Index was unchanged in April at 51.5 percent, indicating moderately positive conditions.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 05-01-15.