NAM: Monday Economic Report

Despite a multitude of challenges—slowing global growth, the partial government shutdown, trade policy uncertainties, a strong U.S. dollar—the U.S. economy showed its resilience in the first quarter, growing a solid 3.2 percent at the annual rate. This was the strongest first quarter of growth since 2015.

The data were buoyed by robust contributions from service-sector consumption, exports and state and local government spending, with notable drags on growth from durable goods spending and housing. Weaker consumer purchases stemmed largely from sharp declines in motor vehicles and parts activity, among other categories.

Nonetheless, the larger story here remains the strength in the top-line number, which exceeded consensus estimates and was significantly better than what was predicted just a few weeks ago. As such, the U.S. economy should now expand by around 2.7 percent in 2019—an improvement from what I might have forecasted prior to this release.

New durable goods orders rebounded strongly, up 2.7 percent in March after falling 1.1 percent in February. In addition, new orders for core capital goods—a proxy for capital spending in the U.S. economy—increased 1.3 percent in March to a new all-time high of nearly $70.0 billion. Overall, new durable goods orders have increased 2.3 percent over the past 12 months, with new orders excluding transportation equipment and core capital goods orders up 2.9 percent and 5.1 percent year-over-year, respectively.

The two regional surveys out last week suggested a continued expansion in manufacturing activity, both in the Kansas City and Richmond Federal Reserve Bank districts, but at a softer pace. More importantly, the outlook for the next six months remained positive.

The housing market data provided mixed results. Encouragingly, new single-family home sales rose for the third consecutive month, up from 662,000 units in February to 692,000 units in March. This was the best monthly reading since November 2017, with reduced mortgage rates likely helping to boost demand. Nonetheless, existing home sales were down 4.9 percent in March, even as the outlook for the next six months would suggest a rebound is likely.

According to the latest Business Employment Dynamics data, which typically come out with a two-quarter lag, there were 5,000 manufacturing start-ups in the third quarter, or a rate of 1.6 percent of all establishments in the sector. Those new establishments (or “births”) employed 24,000 workers. The pace of manufacturing start-ups has been relatively flat for about a decade, and notably, entrepreneurship in the sector (as well as economy-wide) has slowed from the rates in the 1990s and early 2000s.