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Last week’s economic news started off with housing and ended with the gross domestic product (GDP) report. The week ahead will be a busy one, giving us a look at all major sectors and wrapping up with the most important report of the month: employment.
Last week’s news
On Monday, existing home sales beat expectations, rising from 5.54 million in February to 5.60 million in March—the highest level in five months and above expectations of 5.55 million. This continues the recovery from the decline in January, but overall sales remain constrained by a lack of inventory. On Tuesday, the new home sales report also beat expectations and by an even greater amount, moving from 618,000 to 694,000. This result was well above the expected 625,000, which is a substantial recovery from a significant drop late last year. Previous months were also revised up significantly, by 62,000. Housing seems to be on its way to recovering its previous growth level, as demand remains strong.
Also on Tuesday, the Conference Board’s survey of consumer confidence did better than expected as well, rising from 127.7 to 128.7. This result was above an expected decline to 126 and keeps the three-month average at the highest level since December 2000. It also suggests that despite recent rising gas prices and recent stock market turbulence, consumers remain optimistic. This is a positive sign for a recovery in consumer spending growth, as purchasing plans for the next six months improved, especially for housing.
On Thursday, the durable goods orders report beat expectations. Although growth slowed from a very strong (and upwardly revised) 3.5 percent in February, it was still 2.6 percent in March, well above the expected 1.1-percent level on rising aircraft orders and motor vehicle sales. Core orders, on the other hand, which exclude transportation, slowed from a downwardly revised 0.9-percent growth for February to flat for March, well below expectations of 0.5-percent growth. The difference between the two is due to strong aircraft orders, which are notoriously volatile. The weakness in the core figure, a better economic indicator, suggests business investment continues to slow, which could be a headwind going forward. That said, the year-on-year figures remain reasonably strong, suggesting this might be a temporary event.
Finally, the first estimate of economic growth, the GDP report, was released on Friday. It showed economic growth in the first quarter of this year was 2.3 percent, down from 2.9 percent in the fourth quarter of 2017 but above expectations of 2 percent. Given the expected boost from the tax cut, this was somewhat disappointing and comes from slower increases in household spending and business investment. But there is also a real possibility that remaining seasonal effects pushed the number down, as has happened in previous years. If this is the case, we could see faster growth ahead. Also encouraging was the fact that on a year-to-year basis, growth rose to 2.9 percent, the highest level since mid-2015, so the trend remains stronger than the quarterly report suggests.
What to look forward to
Monday’s personal income and spending report showed that income growth remained strong, at 0.3 percent for March, the same as the downwardly revised number for February. This was below expectations of 0.4-percent growth, however, likely due to slower-than-expected job growth last month. Personal spending growth improved as expected, from a downwardly revised flat level in February to 0.4-percent growth in March, on rising auto sales and utility spending. This improvement is helpful after a first-quarter consumer spending slowdown and reflects continued high confidence levels.
On Tuesday, the Institute for Supply Management (ISM) Manufacturing survey is expected to weaken from 59.3 in March to 58.5 in April. This would still be a strongly expansionary level, though. (Values above 50 indicate expansion.) The weak U.S. dollar has continued to benefit this survey, although tariff worries may have a negative effect.
On Thursday, the international trade report is expected to show that the trade deficit narrowed, from $57.6 billion to $55.6 billion, as import growth slowed and export growth rose. Growth abroad and the weaker dollar are likely to keep export growth going, which should be constructive for the economy as a whole.
Thursday’s ISM Nonmanufacturing survey is also expected to weaken, from 58.8 in March to 58 in April. As with the Manufacturing survey, this is a strongly expansionary level and would indicate that economic momentum continues into the second quarter.
Finally, on Friday, the employment report is expected to show that job growth rebounded strongly, from 103,000 in March to 185,000 in April. This growth should push the unemployment rate down from 4.1 percent in March to 4 percent in April. Wage growth, meanwhile, is expected to tick down from 0.3 percent to 0.2 percent. These numbers would indicate continued job growth, albeit at a slightly slower pace, and would normalize the variance of the past two months.
Have a great week!
