Economists expect weak Q1 economic growth
A report this week on first-quarter economic growth is likely to hew to the overriding theme of the economy’s early-in-the-year performance since the Great Recession ended in 2009: weakness. But is the culprit sluggish economic fundamentals or bad measurement? The latest releases on new home sales, consumer confidence and business investment will round out the week’s economic indicators.
New home sales were unusually strong in January and February, at least partly due to unusually warm winter weather. But such outsize size gains typically mean sales were pulled forward and some offsetting retreat lies ahead. Nomura economist Lewis Alexander believes that dynamic will outweigh generally healthy demand stoked by solid job and income growth. Economists expect the Commerce Department on Tuesday to report that new home sales fell 0.7% in March to a still-sturdy seasonally adjusted annual rate of 588,000.
Consumer confidence hit a 16-year high in March, fueled by the healthy labor market, cheap gasoline, reduced household debt and near-record home and stock prices. Not much changed in April, but economists reckon the Conference Board will announce a slight dip from that lofty level.
Related:
Big jobs miss: Employers add disappointing 98,000 jobs in March
Retail sales fall for second straight month
Business investment has bounced back modestly in recent months as rising oil prices spurred more purchases of drilling-related equipment. And an improving global economy has spelled more spending by U.S. manufacturers that export their goods. But the rebound has been choppy. Capital goods orders to factories excluding aircraft and defense – a proxy for business capital spending – dipped in February after edging up the prior month. Economists expect Commerce on Thursday to record a solid 0.5% increase in that measure for March as part of its report on durable, or long-lasting, manufactured goods.
Economic growth has been unexpectedly weak in four of its seven first-quarter performances since the recession ended. Mark Zandi, chief economist of Moody’s Analytics, points to the challenges the government faces making seasonal adjustments that account for harsh winter weather and other factors. But Alexander believes Commerce has made some tweaks to correct those errors. He notes that business investment, exports, defense spending and state and local government outlays -- all of which have been subject to the seasonal adjustment quirks -- likely contributed to growth the first three months of the year. Rather, he says, consumers -- workhorses for the economy in recent years – are likely to blame for the latest sluggish first-quarter showing. Retail sales were mixed. And the warm weather meant reduced spending on utilities, notes RBC Capital Markets. Business stockpiling was also expected to slow after rebounding in the fourth quarter. Overall, economists expect Commerce to announce Friday that the economy grew 1.2% at an annual rate in the first quarter, below the recovery’s 2.1% average.