KEY DATA: GDP: +6.4%; Consumption: +10.7%; Federal Government: +13.9%; Consumer Prices: +3.4%/ Pending Sales: +1.9%/ Claims: -13,000
IN A NUTSHELL: “The economy expanded robustly in the first quarter and the details are even better than the headline number.”
WHAT IT MEANS: Nation, we have liftoff. Economic growth soared in the first quarter, as almost every segment of the economy posted sharp increases in activity. The pace of growth was the second largest in eight years, bested only by the reopening of the economy last summer. Since I like to say the information is in the details, not the headline number, let’s got to the details. And they were simply fabulous. Consumers took the money the government was giving them and shopped like maniacs on everything. While durable goods demand skyrocketed, it was just for vehicles. Purchases of furnishings and durable household equipment increased almost as rapidly. Spending on services, the largest portion of demand, was decent but a bit muted. Businesses, apparently believing the future is bright, investing in everything but new structures. That commitment may take a little more time, but signs are that it is coming. Of course, the federal government spent like there was no tomorrow, which indeed there might have been had that not happened. Even the components that restrained growth bode well for future activity. Inventories were drawn down dramatically, but with government money flowing freely, warehouses will have to be restocked. That will add to growth. Also, the trade deficit widened, though a little less than expected. But that was due to the simple fact that the U.S. has the strongest economy in the world right now, so imports are rising a lot faster than exports, which fell. The widening in the trade deficit is likely to continue for a long time. As for inflation, it accelerated sharply. Again, since Spring 2011, the only time the quarterly consumer costs rose faster was when the economy reopened last summer.
The National Association of Realtors reported that pending home sales rebounded in March from the weather driven February collapse. The recovery, though, was a lot less robust than expected. Supply is largely nonexistent, so sales may be more constrained by the availability of homes than the demand for houses.
New claims for unemployment insurance fell last month, but this report was disappointing. First, the previous week’s level was revised upward by even more than the number of claims declined, so that leaves us above last week’s level. New claims are trending downward, but they remain above 550,000, which is nothing to be happy about. Also, over 16.5 million workers continue to collect assistance, which is where it was last April. The labor is getting better, and with growth strong it should continue to improve, but it would be nice if it did so at a faster pace.