Soft Real GDP Growth in the First Quarter

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The Bureau of Economic Analysis reported that the U.S. economy grew 0.7 percent at the annual rate in the first quarter, starting 2017 off on a soft start as expected. This follows real GDP growth of 2.1 percent in the fourth quarter. Weaker consumer and inventory spending in the first quarter could explain the lower figures, with government spending also serving as a drag on the headline number.

To be fair, this is just the first estimate, so there is a chance that future revisions might show better growth, particularly if incoming data for March are better than expected. In addition, we traditionally have a sluggish first quarter followed by a strong rebound in the second quarter. My current forecast is for 2.8 percent growth in real GDP in the second quarter, with the economy expanding 2.1 percent for 2017 as a whole. Of course, these estimates might drift higher with passage of more pro-growth policies, especially in terms of the outlook later this year and into 2018.

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Kansas City Fed: Manufacturing Activity Pulled Back in April from March’s Nearly Six Year Highs

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The Kansas City Federal Reserve Bank reported that manufacturing activity pulled back in April from March’s levels, which were the highest since March 2011. The composite index of general business conditions declined from 20 in March to 7 in April, even as it expanded for the fifth straight month. In general, manufacturers report improvements in activity, as noted in the selected comments; yet, they also mentioned the “slow first quarter” and some lingering global headwinds. In some ways, we might have expected some easing in sentiment from the euphoric measures in the prior release. Indeed, many of the underlying data points decelerated sharply in April from those highs, including new orders (down from 32 to 8), production (down from 37 to 12), shipments (down from 35 to 11) and employment (down from 13 to 9). Two other figures were mixed. Exports picked up very slightly for the month (up from 2 to 4), whereas the average workweek narrowed for the first time since November (down from 13 to -4). Read More

Growth in New Durable Goods Orders Eased in March but Expanded for the Third Straight Month

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The Census Bureau reported that growth in new durable goods orders eased in March but expanded for the third straight month. New orders rose 0.7 percent in March, increasing from $237.1 billion to $238.7 billion, a five-month high. However, significant escalations in defense and nondefense aircraft and parts orders, which can often be quite volatile from month to month, could explain much of the gain in March. Excluding transportation, new durable goods orders declined 0.2 percent for the month, edging down from $155.7 billion to $155.4 billion. Overall, new durable goods demand has continued to trend in the right direction after stalling for much of the past few years. New durable goods orders have increased 4.5 percent since March 2016’s $228.5 billion pace. Read More

Richmond Fed: Manufacturers Report Continued Strong Growth

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The Richmond Federal Reserve Bank said that manufacturing activity in its district continued to expand strongly, even as it pulled back slightly from the fastest rate since April 2010. The composite index of general business activity declined from 22 in March to 20 in April. That was the sixth straight monthly expansion in the mid-Atlantic region. The underlying data were mixed, but still quite encouraging. New orders (unchanged at 26), shipments (up from 17 to 25) and capacity utilization (up from 21 to 22) all grew at healthy rates, with the latter two accelerating their paces for the month. Growth in demand remained at its briskest pace in seven years, which was also positive. Nonetheless, there was also some easing, mirroring the headline number, in the backlog of orders (down from 14 to 4), employment (down from 20 to 5) and average workweek (down from 21 to 8) measures. Read More

Dallas Fed: Manufacturers Continued to Express Expanding Activity

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The Dallas Federal Reserve Bank reported that manufacturing activity expanded in April for the seventh straight month, mostly sustaining the pace seen in March. The composite index of general business conditions edged down from 16.9 in March to 16.8 in April. While the headline number eased ever-so-slightly, the composite index has averaged 18.4 over the past six reports, which would indicate significant progress from contracting conditions as recently as September. The recent gains in business confidence can largely be attributed to better energy commodity prices and from a post-election boost in optimism, especially as it relates to expectations regarding pro-growth policies. Nonetheless, the sample comments suggest that the improvements have not been as broad-based as we might prefer, with some firms seeing large gains in activity while others continue to struggle, at least for now. Read More

Markit: Eurozone Manufacturing Activity Rose Again in April to another Six-Year High

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The Markit Flash Eurozone Manufacturing PMI rose from 56.2 in March to 56.8 in April, its fastest rate since April 2011. While there continues to be a lot of political uncertainty on the continent, survey respondents in the sector have mostly brushed aside such concerns. Instead, they have focused on the fact that the Eurozone economy has trended generally in the right direction in recent months, with activity accelerating at a modest rate, and the headline PMI has trended higher since bottoming out at 51.2 in February 2016. Despite an election in France this weekend that could be quite consequential, depending on the results, manufacturing activity in that country (up from 53.3 to 55.1) accelerated to its fastest rate since April 2011, helping to lift the Eurozone data. At the same time, Germany (down from 58.3 to 58.2) edged slightly lower from its six-year high in April, but remained quite strong. Read More

Philly Fed: Manufacturing Continues to Expand Strongly Despite some Easing in April

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The Federal Reserve Bank of Philadelphia reported that manufacturing activity remained strong in April, even as headline growth has continued to pull back from February’s pace, which was the best reading since November 1983. The composite index of general business activity has decreased from 43.3 in February, to 32.8 in March, to 22.0 in April. Despite the easing in the composite and many of the underlying measures, the data continued to signal a healthy expansion in the district, including new orders (down from 38.6 to 27.4), shipments (down from 32.9 to 23.4), employment (up from 17.5 to 19.9) and the average workweek (up from 18.5 to 18.9). The rate of hiring growth was the fastest since May 2011. On the downside, there have been rising pricing pressures of late (down from 40.7 to 33.7), even as the index for prices paid decelerated somewhat from its highest level in nearly six years. Read More

Manufacturing Production Pulled Back in March, Ending Six Straight Monthly Gains

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The Federal Reserve reported that manufacturing production pulled back in March, ending six straight monthly gains. Output in the sector declined 0.4 percent, pulled lower by a sharp reduction in motor vehicles and parts production, down 3.0 percent, among others. Yet, even with the reduced figures in March, the data continue to reflect improvements in the manufacturing sector, with activity turning a corner after struggling for much of the past two years due to a number of economic headwinds. Indeed, manufacturing production has increased 0.8 percent over the past 12 months, down from 1.0 percent in the prior release but with progress from declining year-over-year rates as recently as October. Similarly, manufacturing capacity utilization decreased from 75.6 percent—a 13-month high—to 75.3 percent. In general, the utilization rate has trended higher since bottoming out at 74.7 percent in August. Read More

Housing Starts Pulled Back in March but Have Exceeded 1.2 Million in Five of the Past Six Months

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The Census Bureau and the U.S. Department of Housing and Urban Development said that new housing starts declined 6.8 percent in March. New residential construction activity fell from an annualized 1,303,000 in February to 1,215,000 in March. More importantly, it has exceeded 1.2 million in five of the past six months – a psychological threshold that we appear to have finally sustained. That suggests that the housing market continues to show some strength, even with some notable easing in the latest data. Along those lines, both single-family (down from 875,000 to 821,000) and multifamily (down from 428,000 to 394,000) starts were lower in March, with single-family activity decelerating from a pace not seen since October 2007. Read More

New York Fed: Manufacturing Activity Expansion Slowed in April

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The Empire State Manufacturing Survey said that manufacturing activity slowed in April, easing from the more robust paces seen in February and March. The composite index of general business conditions declined from 16.4 in March to 5.2 in April, its weakest reading since November. On the positive side, it was the sixth consecutive monthly expansion, continuing to improve from the softer economic environment seen at this point last year. The underlying data in April were mixed. Growth in both new orders (down from 21.3 to 7.0) and the average employee workweek (down from 15.0 to 8.8) decelerated somewhat for the month, mirroring the headline number. More encouragingly, shipments (up from 11.3 to 13.7) and hiring (up from 8.8 to 13.9) each accelerated in April, which was a good sign. Read More