There were two important reports on the U.S. economy released this morning. First, data from the Bureau of Economic Analysis (BEA) showed that U.S. gross domestic product (GDP) growth slowed significantly in the first quarter of 2016. Specifically, real GDP, which measures the value of the production of goods and services in America adjusted for price changes (inflation), increased at an annual rate of 0.8 percent in Q1. That is 0.3 percentage points higher compared to the initial estimate from the government but a smaller upward revision than most economists had hoped for. The improvement was largely due to private inventories and net trade, while the more important personal consumption component (consumer spending) was little-changed. Despite the revision, this was still another sluggish start to a year for the U.S. economy but many analysts remain hopeful that the recent pattern of weak Q1 GDP growth being offset by a rebound in subsequent quarters will continue to hold true in 2016. For example, the Federal Reserve Bank of Atlanta currently projects that the economy will have grown by 2.9 percent in the second quarter, in line with recent history (second chart below).
Elsewhere, the popular consumer sentiment index from the University of Michigan ended May at 94.7, up significantly from 89.0 in April but down slightly compared to the mid-month (flash) reading. This is also the first month-over-month improvement in headline sentiment since December and the best overall confidence reading in nearly a year. Consumers’ views of both current and future economic conditions improved considerably this month but many survey respondents signaled an increased emphasis on maintaining precautionary savings. The main reason for this, according to the report, is not the potential risk of the Fed hiking interest rates in the next few months but rather the uncertainty surrounding the outlook for future government economic policies under a new U.S. President.
Sources: Econoday, Bloomberg, Twitter, ZH, U.S. BEA, FRBA, UoM, FRBSLPost author: Charles Couch