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Economic Growth Slows to 0.1 Percent in First Quarter
Monday, May 5, 2014 7:00 AM

The economy stalled during the first three months of 2014, growing at a meager +0.1 percent annualized pace, far from the previous two months’ growth rates of +2.6 percent and +4.1 percent. Many blame the adverse weather conditions for the slide, but that does not reconcile with the welcomed increase in consumer spending. After increasing +3.3 percent during the fourth quarter spending advanced again to +3.0 percent during the first quarter of this year.

According to Brian Turner, director and chief strategist with Catalyst Strategic Solutions, much of the weakness came from declines in trade and inventories. Trade activity subtracted a 0.8 percentage point from growth while the drop in business inventories subtracted a 0.6 percentage point from GDP.

“While the report on overall first quarter growth was disappointing, the fact that the consumer spending component of GDP held at +3.0 percent was encouraging,” Turner says.

According to the latest Federal Reserve report, consumer credit at the nation’s credit unions has been growing at a +9 percent annualized pace over the past year. This is compared with a -0.1 percent decline in total consumer credit outstanding.

Over the past four quarters, the average increase in personal consumption is +2.5 percent. This reflects an above-average trend over the past two quarters and correlates with recent growth in loan demand that the industry has been experiencing.

“Many economists are projecting the pace of economic growth to rise through the remaining months of 2014, but it is unclear whether it will be matched with corresponding growth in loans,” adds Turner.

“The increase in consumer credit, and credit union consumer loans, remains an important variable in industry loan growth,” Turner continues. “With mortgage originations expected to drop significantly this year, credit unions will have to fill the gap by increasing the level of consumer loans in order to experience overall loan growth in 2014.”

Other Key Indicators:

S&P/Case-Shiller HPI Average home prices in the nation increased +0.8 percent in February (its latest survey). Year-over-year, home prices have increased +12.9 percent. This is the fourth consecutive year-over-year decline for the index, which peaked at +13.7 percent last fall.

FOMC Announcement There were no notable surprises from the Federal Reserve’s FOMC meeting this week. Policy rates where left unchanged and tapering remains as scheduled with another $10 billion cut expected in May.

Motor Vehicle Sales April vehicle sales fell to an annualized pace of 16.0 million units, down from March’s 16.4 million unit pace. This sales figure still points to solid consumer strength, but certainly will have an impact on the retail sales report.