Last week was a disappointing one on the economic data front. Real GDP—the inflation-adjusted value of the nation’s output of goods and services—climbed 2.5 percent in the first quarter of 2013 at a seasonally adjusted annual rate, according to the Bureau of Economic Analysis’s advance estimate. While that represented an acceleration in economic growth from an even weaker 0.4 percent pace in the final quarter of last year, it was far below many analysts’ estimates.
The increase was driven by a 3.2 percent jump in consumer spending, the largest gain for that category in nine quarters, which came despite a tax increase that took effect at the beginning of the year. A sharp decline in the savings rate in the first quarter, however, indicated that the burst of spending growth was funded in part through a lower accumulation of savings, a situation that is unlikely to continue as the year goes on and individuals adjust their spending habits in response to reduced after-tax income. Indeed, monthly retail sales data suggest this adjustment may have begun as early as March.
Meanwhile, nonresidential fixed investment, though positive, grew at a lower rate than seen in the closing months of 2012 as businesses remained wary of making sizable forward-looking expenditures given a fragile global economic environment and a domestic backdrop of fiscal contraction and continued policy uncertainty. While exports rebounded in the first quarter from a decline in the previous period, they increased at a low pace relative to their post-recession pattern. Moreover, federal government spending was off sharply as the sequester became effective in March.
Other data releases last week did little to assuage growing concerns that the economy may be in the midst of yet another “spring swoon.” The Chicago Fed’s National Activity Index, a composite of 85 monthly economic indicators, slipped into negative territory in March. Meanwhile, the Kansas City and Richmond Fed manufacturing surveys, the Markit Purchasing Managers’ Index (PMI) and the durable goods orders reports all suggested an erosion of manufacturing sector momentum. Even the resurgent housing market was not immune from the March gloom, with existing home sales off modestly (though new home sales, as well as a variety of other measures, gave a more encouraging snapshot of housing’s recovery).
This week’s reports will shed further light on the direction of the economy at the end of the first quarter and beginning of the second. Of particular note:
- Wednesday’s release of the ISM Manufacturing PMI, a closely watched bellwether, will provide an early read on the strength of the manufacturing sector on a national level in April.
- Friday’s release of the employment report by the Bureau of Labor Statistics will provide insight into whether March’s disappointing gain of only 88,000 jobs was merely a one-month anomaly or the start of another deceleration in the pace of labor market recovery.
Other highlights include the Dallas Fed’s April survey of manufacturing conditions in Texas, the Conference Board’s Consumer Confidence Index for April and March data on factory orders and construction spending from the Census Bureau.
Timothy Gill is director of Economic, National Electrical Manufacturers Association.
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