Deller's two cents:  Dang, this recovery just cannot get any traction.  GDP growth positive but below expectations, durable manufacturing orders down, consumer spending growth slows, but new home sales up.  Keep in mind, we are looking for trends in the data, note weekly ups and downs.

Economic Week in Review: The pause that refreshes?

May 27, 2011

Heading into Memorial Day and the unofficial start of summer, the U.S. economy has continued to expand, but at a more gradual pace. Growth in real gross domestic product (GDP) slowed in the first quarter, while April's durable-goods orders fell. Economists expect both measures to rebound. Personal spending growth also dropped slightly, while growth in income remained steady. However, there was some shine to the week's news as new-home sales rose for the second straight month. For the week ended May 27, the S&P 500 Index fell 0.2% to 1,331 (for a year-to-date total return-including price change plus dividends-of about 6.7%). The yield of the 10-year U.S. Treasury note decreased 8 basis points to 3.07% (for a year-to-date decrease of 23 basis points).

GDP slowly advances

GDP-which represents the total value of the nation's goods and services-rose at an annual rate of 1.8% in the first quarter, according to the Commerce Department's second estimate. The rate was unchanged from last month's previous first-quarter estimate, shattering expectations of an increase. It was also below the fourth quarter's 3.1% pace. A deceleration in personal spending growth and increase in imports led to the slowdown along with a reduction in spending from the federal government. A rise in inventories, which had dropped in the fourth quarter, boosted growth. Despite the slower growth, GDP has been positive for seven straight quarters. Economists expect the pace of growth to rise again this year. Next month's revised estimate will be the last for the quarter.

Durable-goods orders tumble

New orders for U.S. durable goods--goods expected to last at least 3 years--dropped 3.6% in April, worse than forecast. Economists cited Japan's March earthquake as a major reason for the decline, as interference with supplies slowed automobile and parts production. Not including the transportation sector's 9.5% fall, new orders decreased 1.5%. New orders for core capital goods--which exclude aircraft and defense orders--fell 2.6%.  

Personal spending growth backs off

Consumer spending increased 0.4% in April, in line with economists' expectations but retreating slightly from March's 0.5% increase. Rising energy and food prices triggered the gains, as consumers paid more at the pump and in the produce aisles. Analysts report that higher gas and grocery bills are forcing consumers to cut their savings or trim less-essential items from their budgets. Income growth, also at a 0.4% rate, remained the same; March's figure was revised downward from 0.5%. The savings rate remained steady at 4.9% after March's number was revised down from 5.5%.  

New-home sales advance again

Sales of new homes rose for the second straight month as the market bounced back from February's dismal lows. New-home sales increased 7.3% in April to an annual rate of 323,000, better than analysts forecast. Paced by a 15.1% surge in the West, all four of the nation's regions showed gains. Inventory dropped to 6.5 months from 7.2. Even so, new-home sales were 23.1% below April 2010, when the federal homebuyer tax credit was still in effect. However, the median sales price increased 4.6% during the past year, to $217,900. 

The economic week ahead

Following the Memorial Day holiday, there's a full slate of economic news on tap. Scheduled reports include the Conference Board's consumer confidence survey on Tuesday; construction spending and the Institute for Supply Management's manufacturing index on Wednesday; productivity, labor costs, and factory orders on Thursday; and the employment situation and the ISM's nonmanufacturing index on Friday.

 

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Steven C. Deller
Professor and Community Development Economist
Department of Agricultural and Applied Economics
515 Taylor Hall --- 427 Lorch Street
University of Wisconsin-Madison/Extension
Madison, WI 53706
608-263-6251
"I started out with nothing and I still have most of it left."
Seasick Steve