Macroeconomic Overview: The U.S. economy was estimated to have grown at a 0.7% annual rate in the first quarter. This was nearly equal the value posted one year ago (+0.8% in the first quarter of 2016), but was the slowest rate of growth since the first quarter of 2014. In the fourth quarter, GDP growth was 2.1%. Primary reasons for the slowdown this winter included a deceleration in consumer spending, lower inventory investment, and less government spending.
On a quarterly basis, growth in real consumer spending between January and March was the lowest since the fourth quarter of 2009. The recent deceleration in spending contrasts with positive readings for many other economic indicators. Job growth has been consistently positive. Wages have been increasing at the strongest rates since the recession for more than a year. U.S. stock markets are trading near record values. Confidence among both consumers and businesses are at the highest levels in more than a decade.
With the personal savings rate near 6.0%, one factor that has likely been holding back spending is lingering concern related to the severe effects of the last recession. In other recent periods of economic expansion, savings rates were nearly half that level. Another explanation for the slower spending is the recent decrease in car sales. After the recession, there was pent up demand for cars and that helped lift auto purchases to a series of records in 2015 and 2016. More recently, that momentum has slowed. Relative to the fourth quarter, spending on cars was down 16% in the first quarter (seasonally-adjusted). However, autos were not the only category to experience a contraction in spending in the first quarter, spending on clothing and footwear decreased 5.1% in the first quarter. This followed flat growth in the fourth quarter (0.0% versus Q3 2016) and a slight decline in the third quarter (-0.8% versus Q2 2016).
The International Monetary Fund (IMF) updated its forecasts for global economic growth last month. Their projection for world GDP growth increased from 3.4% to 3.5% for 2017 and their forecast for GDP growth in 2018 held at 3.6%. For the U.S., IMF figures suggest the economy will expand 2.3% in 2017 and 2.5% in 2018. In 2016, U.S. GDP grew 1.6%.
Employment: The U.S. economy was estimated to have added 211,000 jobs in April. This is a significantly higher reading than the one a month ago, which initially estimated job growth in March to be 98,000. After this month's revision, the expansion in payrolls in March is now believed to have been only 79,000 (a decrease of 19,000). Revision to February's number lifted the figure for that month from 219,000 to 232,000 (an increase of 13,000).
The unemployment rate decreased slightly last month, dropping from 4.5% to 4.4%. The current level is the lowest since 2007 and is less than half of the peak value of 10.0% that was registered in October 2009. Initial claims for unemployment insurance, which are a proxy for layoffs, remain at the lowest levels since the early 1970s.
Wage growth slowed in April, but was over 2.5% for the twelfth consecutive month. In other periods of economic expansion, wage growth of 2.5% would not be considered strong. However, a characteristic of this expansion has been low inflation and for most of the past two years, the rate of wage growth exceeded the rate of inflation by more than a percentage point. This implied greater purchasing power. More recently, inflation has been rising, and the separation between wage growth and inflation rates fell below one percent. This may have been a factor affecting growth in consumer spending in recent months.
Consumer Confidence & Spending: The Conference Board's Index of Consumer Confidence lost 4.6 points last month, registering a value of 120.3. However, last month's level was the highest in more than 15 years, and despite the decline the current reading remains very high relative to values in recent years.
After consecutive month-over-month declines in the first two months of the first quarter, the Bureau of Economic Analysis indicated that overall consumer spending rose 0.3% in March. Year-over-year, total spending is estimated to have grown 2.8%. Expenditures on clothing also posted consecutive declines in January (-0.9% month-over-month) and February (-2.7%), but were higher in March (+1.8%). Year-over-year, apparel spending was negative each month of the first quarter (-0.3% in January, -1.5% in February, and -0.1% in March).
Consumer Prices & Import Data: After two months of increases (1.7% in January and +1.1% in February), retail prices for apparel declined in March (-1.0%). Year-over-year, average consumer prices for clothing were 0.8% higher in March.
In seasonally-adjusted terms, average prices for cotton-dominant apparel imports were unchanged month-over-month in March. At their current level, average sourcing costs remain near the lowest values posted outside of the 2008/09 recession.