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Growth in U.S. Trails Forecasts as Defense Spending Falls

*from, April 26, 2013 (To view original article click here.)

Take Away #1: The U.S. economy grew less than forecast in the first quarter as a drop in defense outlays undercut the biggest increase in consumer spending in two years.

Key Facts and Figures:

  • GDP rose at a 2.5% annualized rate following a 0.4% fourth-quarter advance, according to data from the Commerce Department issued today.
  • The median estimate of 86 economists surveyed by Bloomberg called for a 3% gain.
  • U.S. GDP forecasts in the Bloomberg survey ranged from 1% to 3.8%.
  • Today’s release is the first of three for the quarter, with other releases scheduled for May and June when more information becomes available.

Take Away #2: Another report today showed consumer confidence fell in April.

Key Facts and Figures:

  • This signals that households, which sustained spending last quarter by dipping into savings, may not be able to keep shopping at the same pace as tax increases start to pinch.
  • Across the board cutbacks in federal government spending that took effect in March will also take a toll on growth.

Take Away #3: Stocks fell amid corporate earnings and the economic data.

Key Facts and Figures:

  • The S&P 500 Index dropped 0.3% to 1,579.83 p.m. in New York.
  • Treasuries rallied, sending the yield on the benchmark 10-year note down 1.66% from 1.71% yesterday.

Take Away #4: Consumer spending, accounting for about 70% of the economy, climbed at a 3.2% pace in the first quarter.

Key Facts and Figures:

  • This is the most since the fourth quarter of 2010.
  • Danielle Colbert, a 33-year-old from southern Maryland, said she is shopping for home goods, frequenting stores like Pier 1 Imports Inc., Regency Furniture Inc. and Macy’s Inc.
  • She and her husband, both government employees, built a house last year, taking advantage of low interest rates.
  • However, not all consumers are as upbeat.

Take Away #5: The Thomson Reuters/University of Michigan final index of consumer sentiment declined to 76.4 from 78.6 a month earlier.

Key Facts and Figures:

  • Still, the figure exceeded the median projection in a Bloomberg survey which called for a drop to 73.5.
  • The preliminary April reading issued two weeks ago was 72.3.
  • Americans boosted spending by putting less money in the bank, the Commerce Dept. figures showed.

Take Away #6: Americans boosted spending by putting less money in the bank, the Commerce Department figures showed.

Key Facts and Figures:

  • The saving rate dropped to 2.6% in the first quarter, the lowest since the last three months of 2007, from 4.7% in the prior period.
  • Another reason for the slump in savings was that earnings plunged.
  • Disposable income adjusted for inflation dropped 5.3% annualized rate from January through March.
  • That is the biggest drop since the third quarter of 2009, after a 6.2% gain in the fourth quarter.
  • In addition to the increase in the payroll tax last quarter, the hit to incomes came after companies accelerated dividend and bonus payments in the fourth quarter.
  • Aside from consumer spending, growth in the first quarter was driven by a rebound in stockpiling and a gain in residential construction.

Take Away #7: Government outlays declined for the 10th time in the past 11 quarters, restraining growth, and the drop over the past six months may be a harbinger of things to come.

Key Facts and Figures:

  • The drop over the past six months may be an indicator of things to come as across-the-board cuts, or sequestration, take effect.
  • Defense spending dropped at an 11.5 percent annualized pace following a 22.1 percent plunge in the last three months of 2012.
  • That was the biggest back-to-back decline on average since 1954, when the military demobilized after the Korean War.
  • The lagged effect from a two percentage-point jump in the payroll tax at the start of 2013, and $85 billion in automatic budget cuts that began March 1, may take a toll this quarter.
  • The economy will grow at a 1.5 percent pace, before reaccelerating to an average 2.4 percent rate of expansion in the last six months of the year, according to a separate Bloomberg survey.
  • The Congressional Budget Office has estimated sequestration alone will reduce GDP this year by 0.6 percentage point.
  • Business investment, another contributor to growth, is cooling as sequestration takes hold.
  • Corporate spending on equipment and software climbed at a 3 percent pace from January through March after rising at an 11.8 percent rate in the previous quarter.

Take Away #8: The GDP report also showed price pressures remain contained, likely continuing the Federal Reserves pledge to maintain stimulus measures.

Key Facts and Figures:

  • A measure of inflation tied to consumer spending, the one tracked by the Fed policy makers, rose at a 0.9 percent annualized rate in the first quarter.
  • This puts it down from a 1.6 percent gain in the previous three months.
  • Central bankers have said their goal is to keep price increases at about 2 percent.
  • The lack of inflation means the Fed will probably maintain bond purchases when it meets next week.

Take Away #9: The key economic indicators “point to slow steady growth in the U.S. economy,” said Clarence Gooden, chief commercial officer at CSX Corp.

Key Facts and Figures:

  • “Forward projections show continued slow growth in the near term, with improved growth rates later in the year,” said Gooden.
  • One area that has seen sustained gains in demand is automobiles. 
  • Cars sold at an average 15.3 million annualized rate in the first quarter, the most since the same period in 2008, according to figures from Ward’s Automotive Group.
  • “The only negative real headwinds we see are higher taxes and potentially lower government spending,” said Kurt McNeil of General Motors Co.
  • “Everything else seems to be pretty positive,” he said, mentioning jobs, housing and stock market performance.

Take Away #10: The housing market also remains a bright spot as borrowing costs near a record low help draw buyers.

Key Facts and Figures:

  • Residential construction increased at a 12.6 percent annualized rate last quarter, adding 0.3 percentage point to growth, today’s GDP report showed.

*To view original article from click here.

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