Last week saw the release of a number of important economic data reports. Better-than-expected consumer confidence and personal spending reports served as the week’s highlights. This week will be another busy one for news, with the focus on April’s business confidence and employment reports.
Last Week’s News
Monday saw the release of the preliminary estimate of March’s durable goods orders. The report showed that durable goods orders rose by 0.5 percent during the month, against economist estimates for a 2.3 percent increase. This miss against expectations was primarily due to a slowdown in volatile aircraft orders. Core durable goods orders, which strip out the impact of transportation orders, rose by a solid 1.6 percent in March, in line with economist estimates. Core durable goods orders are often viewed as a proxy for business spending, so this return to growth following a weather-related lull in February spending was a positive sign for business spending during the month and quarter. Business confidence surged in March, largely driven by the improvements on the public health front and the recent stimulus bill. Looking forward, high levels of business confidence should support further spending growth as we head into the spring and summer.
On Tuesday, the Conference Board Consumer Confidence Index for April was released. During the month, confidence increased by more than expected, causing the index to rise from 109 in March to 121.7 in April. Economists had forecasted a more modest increase to 113. The result, which brought the index to a new post-pandemic high, was due to improving consumer views on the present economic situation. This improved outlook was driven by stimulus checks, increased vaccinations, and the continued easing of state and local restrictions. Historically, rising confidence has supported faster consumer spending growth, so this strong report is a very encouraging sign for consumer spending to start the second quarter. Although work remains to get the index above the pre-pandemic high of 131 we saw in February 2020, the uptick in consumer confidence over the past few months has been encouraging. It indicates we may be heading back to normal sooner than expected, assuming we stay on the current path.
Wednesday saw the release of the FOMC rate decision from the Fed’s April meeting. The Fed cut the federal funds rate to virtually zero last March, and no changes to interest rates were made at this meeting, as expected. Additionally, there were no changes to the Fed’s current $120 billion a month asset purchasing program. Overall, the meeting did not provide any major surprises, as the Fed continued to remain broadly supportive of the ongoing economic recovery. Fed officials noted that the pace of the economic recovery has accelerated recently, especially for sectors that had previously been hardest hit during the worst of the pandemic. Nonetheless, Fed members continue to view the pandemic as a public health crisis that presents a risk to the recovery. The accommodative policy will remain in place until further substantial progress is made in achieving the Fed’s goal of maximum employment. Going forward, economists will continue to closely monitor FOMC meetings for any hints of potential policy changes as the economic recovery continues.
Thursday saw the release of the advance estimate for first-quarter GDP growth. The report showed that the economy grew at an annualized rate of 6.4 percent during the quarter. This result was up from the 4.3 percent annualized growth rate in the prior quarter, but below economist estimates for a 6.7 percent annualized growth rate. This faster growth compared with the fourth quarter was due in large part to a surge in personal consumption to start the year. Personal consumption grew at an annualized rate of 10.7 percent during the quarter, up from a 2.3 percent annualized growth rate in the fourth quarter of 2020. Economists had predicted a 10.5 percent annualized growth rate. Personal consumption was supported by multiple rounds of federal stimulus payment during the quarter, as well as rising consumer confidence driven by the improved public health and economic situations. While headline GDP growth came in slightly below economist estimates, this report was strong overall, showing an accelerating economic recovery to start the year. Given the improvements on the public health front and the continued easing of state and local restrictions, economists expect to see further economic growth throughout the rest of the year.
Thursday also saw the release of the initial jobless claims report for the week ending April 24. During the week, the number of initial unemployment claims fell from an upwardly revised 566,000 to 553,000. Although this result was slightly above economist estimates for a decline to 540,000, it represents the lowest number of weekly unemployment claims since the start of the pandemic. The number of layoffs can be quite volatile on a week-to-week basis, but this report marks three straight weeks with initial claims coming in under 600,000. This is a marked improvement from the 2021 high of more than 900,000 weekly initial claims we saw in early January. It reflects the positive impact that improved public health has had on the labor market this year. Still, despite the solid progress over the past few months, work must be done to get initial claims back to pre-pandemic levels. Accordingly, this release will continue to be widely monitored.
We finished the week with Friday’s release of the March personal income and personal spending reports. Personal spending rose by 4.2 percent during the month, slightly above economist estimates for 4.1 percent growth following February’s 1 percent decline in spending. This result was driven by the additional round of federal stimulus checks hitting bank accounts during the month, as well as the tailwind from rising consumer confidence amidst the improving public health situation. This return to spending growth following a weather-related lull in spending in February echoes a similar rise in retail sales in March. It indicates that consumers remain willing and able to spend more as we head into the spring. Personal income also increased by more than expected during the month, jumping by 21.1 percent against calls for a 20.3 percent increase. Personal income has been very volatile on a month-to-month basis during the pandemic, driven by shifting federal stimulus payments. The larger-than-expected increase in March was due to the impact from the $1,400 stimulus checks distributed during the month.
What to Look Forward To
On Monday, the ISM Manufacturing index for April was released. This widely monitored gauge of manufacturer confidence fell by more than expected during the month. The index dropped from 64.7 in March to 60.7 in April, against calls for an increase to 65. Manufacturers largely cited supply chain constraints as the major factor in the slowdown during the month. The global shortage of semiconductor chips served as a headwind for faster overall output growth in key industries. This is a diffusion index, where values above 50 indicate expansion. So, despite the miss against forecasts, the manufacturing industry is set for further growth ahead. Demand has been strong this year, and it’s expected to remain strong as we continue to reopen the economy. In the short term, however, supply chain constraints may serve as a headwind for significantly higher levels of manufacturing output, until the issues are resolved.
On Tuesday, the March international trade report is set to be released. The trade deficit is expected to widen during the month, from $71.1 billion in February to $74.0 billion in March. If estimates prove accurate, this report would bring the trade deficit to its widest monthly level on record. Both imports and exports are expected to show growth, following a weather-related slump in February, but imports should increase more than exports. The previously reported advance trade of goods report showed that exports of goods increased by 8.6 percent in March, while imported goods rose by 6.8 percent. Nonetheless, the dollar value of imports growth was larger than that of exports growth. Looking forward, a return to more normal economic conditions across the globe is expected to drive additional export growth throughout much of the year. The pace of this export recovery will likely depend in large part on the overall global economic recovery.
Wednesday will see the release of the ISM Services index for April. This widely monitored measure of service sector confidence is expected to increase from 63.7 in March to 64.1 in April. If estimates hold, the index would sit at its highest level since records began in 1997, breaking the record just set in March. This is another diffusion index, where values above 50 indicate expansion, so any further improvement would be a positive signal for service sector growth in April. As has been the case with manufacturer confidence, high consumer demand has served as a tailwind for service sector confidence since initial lockdowns were lifted. At the start of the year, we saw some pressure to service sector confidence due to the third wave of infections. Subsequently, improvements on the public health front in the first quarter spurred a resurgence in confidence as we head into the spring.
On Thursday, the initial jobless claims report for the week ending May 1 is set to be released. Economists expect to see 540,000 initial unemployment claims filed during the week, in a modest improvement from the 553,000 initial claims filed the prior week. If estimates hold, this report would mark four straight weeks with initial claims coming in under 600,000. This would be an encouraging sign that the labor market recovery has turned a corner following the containment of the pandemic’s third wave. Claims at current levels would likely support a return to faster overall hiring in May, and any further improvement would be a sign that the labor market recovery continues to accelerate. Much of the recent progress in cutting the number of weekly layoffs has been focused on the hard-hit service sector jobs. Improvements on the public health front and the continued easing of state and local restrictions have driven this progress.
We’ll finish the week with Friday’s release of the April employment report. Economists expect to see 950,000 jobs added to the economy during the month, in a step up from the 916,000 jobs added in March. If estimates hold, this report would mark four straight months with accelerated hiring, likely reflecting the tailwind from public health improvements and the associated reopening of businesses. The underlying data is also expected to show improvements, with the unemployment rate set to fall from 6 percent to 5.8 percent. A rise in the labor force participation rate from 61.5 percent to 61.7 percent is also expected. While very real work must be done to get back to pre-pandemic levels of employment, we can hope to see a continued acceleration in the pace of hiring over the next few months. Additional progress will depend on the mass vaccination programs and continued easing of state and local restrictions.
That’s it for this week—thanks for reading and stay safe!