Q1 GDP Research Notes

by Jim Baird on June 26, 2015

CaptureQ1 GDP estimates raised to -0.2% as expected

The final estimate of first quarter GDP suggests the economy contracted by 0.2%, compared to the previously estimated decline of 0.7%.  The modest improvement was not surprising, as the report was in line with expectations.

While consumer spending grew in the first quarter, spending on goods ground to a near standstill.  The impact was evident across the board and not limited to higher ticket items, suggesting that consumers were simply more restrained in their spending habits.

The impact of the stronger dollar and tepid growth outside the U.S. also played a meaningful role.  A decline in exports trimmed growth by 0.8% after three consecutive quarters of growth.  Imports were also a drag on growth.

Factors contributing to the contraction, including harsh winter weather hampering consumer spending and exports, the West Coast port strikes, and the decline in oil prices leading to reduced infrastructure spending, all appear to be transitory in nature.

In addition, questions have been raised about the validity of the seasonal adjustments being applied to first quarter GDP.  For the second consecutive year, Q1 growth has been reported as negative, even as most job market indicators remained solidly positive.  The Bureau of Economic Analysis has acknowledged these issues and will release revised figures next month.  Those adjustments are expected to push first quarter figures higher.

Overall, today’s GDP print is unlikely to have any market impact, particularly with the current focus on Greece and the Eurozone.  Further, investors are already looking ahead to growth forecasts for the second quarter, which should bring much stronger growth – projected by economists to potentially near 3%.

To see news coverage featuring Jim’s comments, please visit the following sites:

The 2015 Economic Growth Story Is Looking A Lot Like The 2014 Story So Far (WSJ)

Lighter GDP Contraction Hikes Confidence Fed Rate Move Coming In September (Forbes)

Consumer Sentiment Research Notes

by Jim Baird on June 12, 2015

CaptureSentiment surges in June

The University of Michigan Consumer Sentiment Index rose in June, coming in at 94.6 – easily beating the consensus call for a modest increase to 91.2. The Index clocked in at 90.7 in May.

Consumers are increasingly upbeat about the current state of the economy, and are more optimistic about the future.

Consumers generally feel more confident when the jobs market is strong, the stock market is elevated, and gasoline prices are low. Sentiment is still high as all three remain in constructive territory, although gasoline prices have edged higher in recent months. The recent resurgence in job creation and a growing sense that wage growth may be accelerating are positives for consumers.

The May retail sales report released earlier this week was stronger than expected, breaking a string of disappointments since the start of the year. The gains were broad-based in nature as apparel, general merchandise, and auto sales all rose at a healthy clip, suggesting that consumers’ propensity to spend may finally be on the rise.

Solid – and still improving – labor market conditions continue to fuel consumer confidence, as they have for the past several years. Weekly jobless claims in June remained below 300,000 and the labor market had its best month of the year with payrolls increasing by 280,000. Those results have provided some reassurance about the economy and helped to dismiss lingering questions following disappointing results in March and April.

Despite a soft first quarter that saw reported GDP growth slip into negative territory, the economy is expected to rebound in the second quarter, with most forecasts calling for growth of 2.5%-3.0%. Preliminary indicators such as retail sales, along with rising business inventories and other factors, suggest underlying growth in the economy remains healthy.

May’s Employment Situation Research Notes

June 5, 2015

Nonfarm payroll gains accelerate in May; top 300k with revisions Job market conditions remained strong in May as the economy created 280,000 jobs – the best monthly gain thus far this year. This result was well above expectations of 226,000 new jobs, and a sharp pickup over April’s revised gain of 221,000. Coupled with revisions […]

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Market Perspectives (May 2015)

May 29, 2015

Executive Summary March brought continued volatility to global markets, though overseas equities continued to outperform the S&P 500 year to date. Despite this volatility, stocks ended the quarter in positive territory. U.S. large cap stocks declined while mid cap performance was relatively flat amid declining corporate earnings growth, uncertainty over the timing of future Fed […]

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May’s Consumer Confidence Research Notes

May 27, 2015

Confidence rises in May on stronger labor market conditions Confidence rose fractionally in May as consumers weighed evidence that the economy slowed in recent months. The Conference Board’s Consumer Confidence Index edged higher to 95.4, moderately higher than the revised reading of 94.3 in April. This moderate firming in confidence is a positive, suggesting that […]

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Jobless Claims (week of 5.9.15) Research Notes

May 15, 2015

Jobless claims decline modestly; 4-week average at 15-year low Initial jobless claims fell modestly to 264,000 for the week ended May 9, slightly below the previous week’s print of 265,000. This week’s result pulled the four-week moving average down to 271,750. At recent levels, jobless claims suggest that layoffs remain low and job market conditions […]

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April Retail Sales Research Notes

May 13, 2015

Retail sales flat in April Retail sales were flat in April, falling short of expectations for a modest 0.2% rise. Sales excluding motor vehicles managed a modest gain of 0.1%. March retail sales were revised upward to 1.1%. Weak sales gains coincides with other data that suggests that the economy has been in a soft […]

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Consumer Sentiment Research Notes

May 1, 2015

Consumer sentiment rises in line with expectations in April The University of Michigan Consumer Sentiment Index increased in April, coming in at 95.9, matching expectations for the month and confirming a moderate increase from the March index reading of 93.0. Those surveyed indicated that they have become more optimistic in general in the past month […]

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Market Perspectives (April 2015)

April 14, 2015

Executive Summary March brought continued volatility to global markets, though overseas equities continued to outperform the S&P 500 year to date.  Despite this volatility, stocks ended the quarter in positive territory. U.S. large cap stocks declined while mid cap performance was relatively flat amid declining corporate earnings growth, uncertainty over the timing of future Fed […]

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Economic Perspectives (First Quarter 2015)

April 14, 2015

The economy appears to be off to a sluggish start this year, in part due to the collapse in oil prices and the strength of the dollar.  Still, the economy is growing, and should be supported by confident U.S. consumers with some pent-up ability to spend. Read the full article>>

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