THE ECONOMY:
GDP was indeed revised higher than the 3.1% originally reported, but the 3.5% reading, while very solid, did not hit the 3.7% expected and our whisper of near 3.9%. There is another revision ahead and as more data comes in and we see the soft spot was not so soft. Indeed Fed governor Gramlich today said that the March soft spot was indeed over and that the current economic growth had solid underpinnings. There you go. The economic gods have spoken.
What that means is an economy that is still good enough for the Fed to keep on hiking rates, continuing the handicapping of just how far the Fed is going to go: just a couple more to get the FF rate to 3.5% and gain some maneuvering room or a more robust and recession-inducing 4.5%. If it goes that high, then the hiking will continue past Greenspan, something that he does not want to leave as a legacy for the next Fed chairman. Thus either he stops at 3.5% to 4% or he picks up the intensity with some 50 BP hikes. Given it is sticking to the 'measured pace' language, it appears he is shooting for 4% or less.
The GDP report itself showed solid, steady growth, not bad for a soft spot in March. Consumer spending rose 3.6% versus the 3.5% originally reported. Durables were up 1.7% from unchanged; exports rose 7.2% versus 7.0%, imports were revised lower to 9.1% from 14.7%; investment fell to 5.6% from 6.9% originally reported. Again, decent numbers for a quarter with an acknowledged slowdown in it. With Gramlich stating the slow patch is over, one would expect Q2 to be off to a good start if 3.5% growth is accomplished with a slow patch.
Initial jobless claims continue their softer pace.
Weekly claims slid in just above expectations at 323K while the prior week was revised higher to 322K. The four week average rose to 330,500. Jobless claims have quietly slipped higher over the past couple of months, rising from near 300K. The rise has not been huge, but it is showing a definite softening which indicates no real improvement in the jobs market. After making some good strides earlier in the year, the picture has softened. The last jobs report likely overstated the number of jobs created; the weekly clams don't readily support a major climb in jobs then and now.
This is another indication that while the soft spot may have ended, the economy is not at a level that is creating a lot of new jobs. Further, it appears that companies are still actively avoiding hiring outside of absolute necessity, still reluctant to create that additional overhead. Jobs are important to consumer psyche, but they are also important as an indicator of overall economic health. If an economy is really recovering after the kind of 'self-employment' recovery this expansion has its roots in, those new start ups will have to start creating new jobs. Right now we are nowhere near a sweet spot for job creation. |
