At the FOMC meeting this week, the Federal Reserve left the possibility of a summer rate hike on the table. While acknowledging that the economy weakened, the Fed attributed the weakness to “transitory factors”, and maintained an optimistic tone: “although growth in output and unemployment slowed during the first quarter, the committee continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace”.
The US economy slowed to a crawl in the first quarter, with GDP expanding a weak .2%, dragged down by bad weather, a strengthening dollar that slowed exports and a decline in business investment. Exports fell at a 7.2% annual pace, while business investment shrank 3.4%. By contrast, the economy expanded 2.2% in the final quarter of 2014.
On a positive note, more Americans signed contracts to buy homes in March, as pending home sales rose for the third consecutive month. The National Association of Realtors pending home sales index rose 1.1% to the highest level since June 2013: “while contract activity being up convincingly compared to a year ago is certainly good news, the increased number of traditional buyers who appear to be replacing investors paying in cash is even better news. It indicates this year’s activity is being driven by more long-term homeowners.”
On a negative note, consumer confidence slipped in April, reflecting gloomier expectations for the next six months and worries about the availability of jobs: “Consumer confidence, which had rebounded in March, gave back all of the gain and more in April. This month’s retreat was prompted by a softening in current conditions, likely sparked by the recent lackluster performance of the labor market, and apprehension about the short-term outlook”, according to the Conference Board.
Growth in the manufacturing sector held steady in April at the slowest pace in almost two years, as the ISM manufacturing index was unchanged at 51.5%. While new orders and productivity improved, that was offset by a drop in employment to the lowest level since September 2009 as manufacturers scaled back hiring.
Consumer spending rose a modest .4% in March, after a .2% rise in February. Personal income was flat for the month, likely the result of slower job creation, pushing the savings rate to fall to 5.3% – the first decline in four months.