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Economic Week in Review: Acceleration in the slow lane

April 26, 2013

The U.S. economy displayed growth in the first quarter, based on the initial estimate of real gross domestic product, but GDP fell shy of expectations. News wasn't especially positive in other areas, either. On the real estate front, existing-home sales dropped while new-home sales moved forward. Durable-goods orders declined.

For the week ended April 26, 2013, the S&P 500 Index rose 1.7% to 1,582 (for a year-to-date total return—including price change plus dividends—of about 11.6%). The yield on the 10-year U.S. Treasury note fell 3 basis points to 1.70% (for a year-to-date decrease of 8 basis points).

GDP growth underwhelms

The annual rate of GDP—the broadest measure of goods and services produced by the United States and a gauge for the nation's economic growth—expanded 2.5% (annualized) in the first quarter of 2013, according to the Commerce Department's initial estimate. The department's Bureau of Economic Analysis cautioned that the estimate was “based on source data that are incomplete or subject to further revision.” The second first-quarter estimate is set for release May 30. Although the increase exceeded the 0.4% (annualized) for the fourth quarter of 2012, it fell short of economists' forecasts and doesn't bode well for the near future. An uptick in consumer spending and inventory replenishment contributed to the expansion. Government spending was still down, but its decline wasn't as large as that in the prior quarter. International trade also detracted.

GDP: Under the hood
  4Q 2012 1Q 2013
Real GDP growth
+0.4% +2.5%
Major components: Contributions/subtractions
(percentage points)
Consumer spending +1.3 +2.2
Business spending and inventories +0.2 +1.6
Trade (exports minus imports) +0.3 –0.5
Federal, state, and local government spending –1.4 –0.8

Annualized quarterly change, rounded.

Get a closer look at GDP and its components.

Existing-home sales dip

Existing-home sales declined 0.6% in March, and February's numbers were revised slightly downward. Long-term trends are still positive, however. Compared with March 2012, sales are up 10.3%. In fact, sales have topped year-ago levels for 21 straight months, and prices have done so 13 months in a row. Prices climbed 6.4% from February to March, with the median existing-home price reaching $184,300. Most of the monthly drop came from condo sales, which were off 3.2%. Single-family home sales dipped 0.2%. Sales were down in the South and West, flat in the Northeast, and up in the Midwest. Inventories increased 1.6% in March to a 4.7-month supply, though that was 17% below a year ago.

New-home sales resume rising

The recent new-home sales rollercoaster is once again moving higher. Sales climbed 1.5% in March after February's drop and January's sharp gain. The long-term trend is promising. Sales are up 18.5% from a year ago. The median price for a new home rose 3% to $247,000 in March from $239,800 a year ago. Significant growth in the Northeast and South offset large declines in the West and Midwest. The 4.4-month supply of new homes was unchanged from February, reflecting tight supply and strong demand as mortgage rates remain low and homebuilders assist prospective buyers with financing.

Durable-goods orders stumble

Orders for long-lasting manufactured goods in March fell 5.7%—a steeper decline than economists expected—and February's increase was adjusted downward to 4.3%. Although durable-goods orders have dropped in two of the past three months, a signal that growth is waning, the report wasn't all bad. A major reason for the fall was fewer aircraft orders, particularly from Boeing. Excluding transportation, durable-goods orders were off 1.4% in March; excluding defense, they dropped 4.7%. Orders for core capital goods—considered a measure of business investment spending—advanced 0.2% following February's 2.7% retreat. Also in March, shipments increased 0.4%, unfilled orders fell 0.6%, and inventories swelled 0.1%.

The economic week ahead

A full slate of reports is on tap, beginning with personal income on Monday and following with the employment cost index and consumer confidence (Tuesday); construction spending, the ISM Manufacturing Index, and the latest Federal Reserve statement (Wednesday); productivity and costs along with international trade (Thursday); and the employment situation, factory orders, and the ISM Nonmanufacturing Index (Friday).

Summary of major economic reports
Date Report Actual
value
Consensus
expected value
10-year note yield S&P 500 Index
April 22 Existing-Home Sales (March, annualized)
Source: National Association of Realtors
4.92 million 5.01 million –1 bp +0.5%
April 23 New-Home Sales (March, annualized)
Source: Commerce Department
417,000 420,000 +2 bp +1.0%
April 24 Durable-Goods Orders (March)
Source: Commerce Department
–5.7% –2.8% –1 bp 0.0%
April 25 Initial Jobless Claims (week ended April 20)
Source: Labor Department
339,000 351,000 +1 bp +0.4%
April 26 Real Gross Domestic Product (Q1 annual rate)
Source: Commerce Department
+2.5% +3.0% –4 bp –0.2%
    Weekly change –3 bp +1.7%

bp=basis points. 100 basis points equal 1%. For example, if a bond's yield rises from 5.0% to 5.5%, the increase is 50 basis points.

Notes

  • The economic statistics presented in this report are subject to revision by the agencies that issue them. For more information on the reports mentioned in this article, read Guide to major U.S. economic reports.
  • All investing is subject to risk, including possible loss of the money you invest.
  • Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
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