No one paid much attention to today's final Q1 GDP figure, which is understandable since it reflects a period that ended over three months ago. Nonetheless, there were two key points worth noting: the GDP grew at an annualized rate of 1.4%, slightly above last quarter's downward revision to 1.3%, matching expectations. However, this 1.4% growth is still the lowest since the technical recession ended on June 22.
Despite the overall GDP increase, the details were less encouraging. Personal consumption dropped unexpectedly from an annualized 2.0% to 1.5%, missing the expected 2.0%. This aligns with recent earnings reports from companies like McDonald's, 3M, Coca-Cola, POOL Corporation, and Walgreens, highlighting that the American consumer, crucial for 70% of GDP growth, is struggling. Consumer spending rose mainly in services, driven by health care, while spending on goods, particularly motor vehicles, parts, gasoline, and other energy products, declined.
Housing investment saw increases due to brokers' commissions and single-family housing construction, while inventory investment fell due to reductions in wholesale trade and manufacturing.
Breaking down the GDP growth: personal consumption contributed 0.98% to the overall 1.41% growth, down from the second estimate of 1.34% and nearly half of the initial estimate of 1.68%. Fixed investment added 1.19%, up from 1.02%. Changes in private inventories slightly improved to -0.42% from -0.45%. Net trade subtracted 0.65%, better than the previous -0.89%, but this is expected to worsen in Q2 due to the rising dollar. Government consumption increased modestly to 0.31%, up from 0.23%.
While this data isn't immediately relevant, it's noteworthy that the BEA reported a slight rise in Q1 prices, with the GDP price index up 3.1% from 3.0%, and core PCE up 3.7% from 3.6%. Gross domestic purchases prices increased by 3.1% after a 1.9% rise in the previous quarter. Excluding food and energy, prices rose 3.3%, up from 2.1%. Personal consumption expenditures (PCE) prices increased by 3.4% compared to 1.8% in the previous quarter, with the core PCE rising 3.7% from 2.0%.
In summary, stagflationary pressures are mounting, with growth likely to dip into contraction as consumer spending weakens, while prices remain stubbornly high. Despite a possible modest drop in tomorrow's core PCE due to technical factors, prices are expected to continue rising without a significant economic downturn.
New orders for durable goods in the US rose by just 0.1% month-on-month in May's preliminary data, slightly better than the expected -0.5%, thanks to a significant downward revision of April's data from +0.6% to +0.2%. Over the past four months, durable goods orders have decreased by 1.2% year-on-year, with frequent downward revisions in recent months. Core capital goods orders (non-defense, excluding aircraft) fell 0.6% month-on-month, the largest drop this year, with both defense and non-defense spending slowing. Capital goods shipments non-defense, ex-aircraft, also fell by 0.5% month-on-month, indicating weaker business spending and GDP growth.
Pending home sales in May fell by 2.1% month-on-month, contrary to analysts' expectations of a small rebound after April's decline. This drop brought the year-on-year change down by 6.6%, a new record low. According to NAR Chief Economist Lawrence Yun, rising inventory and lower demand suggest slowing home price appreciation in the coming months. However, despite high selling prices reaching a record $419,300 in May, there has been a gradual increase in listings. Yun expressed cautious optimism about the impact of increased supply on home sales, especially as mortgage rates decrease. Pending sales typically precede existing home sales by one or two months, making these figures a leading indicator of future home sales.
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