Economic Perspective – April 2013

• The U.S. economy grew 2.5% during the first quarter of 2013, according to the Bureau of Economic Analysis. However, that pace was weaker than expected, and growth for the previous quarter was revised downward to a paltry 0.4%. Gains in consumer spending, business inventories and capital investments, exports, and residential investment were partly offset by lower exports and government spending cuts at federal, state, and local levels.
• The unemployment rate fell slightly to 7.6%, according to the Bureau of Labor Statistics’ April report for March. However, the 88,000 new jobs represented the slowest job growth in almost a year, and much of the decline in the unemployment rate resulted from half a million people leaving the workforce.
• The housing market continued to be a cornerstone of economic recovery. The 20 cities of the S&P/Case-Shiller index saw home prices that were 9.3% higher than a year earlier. New home sales were up 1.5% in March, and 18.5% higher than the same time last year, according to the Commerce Department. The National Association of Realtors® said sales of existing homes were up 10.3% from a year ago, though tight inventories cut sales by 0.6% for the month. And a 7% increase for the month put new residential construction at its highest level since 2008; the Commerce Department said that’s almost 47% higher than a year earlier.
• Lower energy costs after a sharp run-up the month before helped cut inflation at both the consumer and wholesale levels. The Bureau of Labor Statistics said a 0.2% monthly decline cut the annual consumer inflation rate to 1.5%. Wholesale prices were down 0.6% for the month, and the 1.1% year-over-year increase was the smallest since last July.
• Lower gas prices also affected U.S. retail sales, which the Commerce Department said were down 0.4% for the month but 2.8% higher than a year earlier. Consumer spending also rose 0.2% during the month, though it was the smallest increase in three months and higher utility bills were responsible for much of it.
• Manufacturing data was mixed. The Fed said Q1 industrial production saw its biggest gain in a year. However, the Empire State and Philly Fed manufacturing surveys saw monthly declines, and the Institute for Supply Management found growth slowing in both the manufacturing and services sectors. Also, the Commerce Department said a drop in spending on commercial aircraft cut durable goods orders 5.7%; it was the second monthly dip in three months.
• The Bank of Japan announced a massive expansion of its quantitative easing efforts to try to drag the country out of the deflation that has plagued it for years. Meanwhile, there were signals that Europe might be easing its push for austerity as Ireland, Portugal, and Spain were granted more time to meet deficit reduction targets.
• The Chinese economy showed weaker-than-expected growth during the first quarter. According to China’s National Bureau of Statistics, gross domestic product rose 7.7% rather than the 7.9% the quarter before.

Eye on the Month Ahead

The equities rally could face a challenge from any “sell in May, go away” sentiment and/or potential economic fallout from the sequester’s budget cuts. Any fresh clarity from the Fed about the timing of quantitative easing’s end also could have an impact.