Week In Review 4.26.2019

GDP—US real GDP increased at a 3.2% annualized rate in Q1, the best first quarter growth rate in four years, and above the consensus estimate of 2.5%. The Bureau of Economic Analysis estimates that the partial government shutdown subtracted 0.3 percentage points from growth in Q1 and 0.1 points in Q4-2018. Without that interruption, growth would have been stronger. Q1 growth was driven by a surge in inventories, a large contribution from net exports, and a pickup in state and local government spending. Consumer spending and CapEx growth, however, moderated significantly, perhaps highlighting certain economic vulnerabilities. Importantly, the data suggests that a near term recession is unlikely, and it also continues to support the Fed’s decision to remain patient with respect to future rate increases.

Housing data was mixed. New home sales rose well ahead of expectations increasing 4.5% in March, while sales of existing homes fell -4.9% in the month. That said, the expectation remains that the housing sector is set to improve modestly through year-end, as wages firm and mortgage rates continue to track lower.

Manufacturing—Durable goods orders rose 2.7% in March, the most in seven months, and above the consensus of 0.8%. Core capital goods orders (ex. Aircraft and other transportation) climbed 1.3%, its third straight gain, and the most since last July. On a year-over-year basis, however, durable goods orders eased to 4.2%, the least since May 2017, consistent with slowing output growth.

Consumer Sentiment improved in the second half of April, but remains below the cycle peak it reached in March of 2018, which suggests a slower pace of consumer spending growth in the near-term.