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News on First Quarter Economic Growth Not Surprising to Most of Market, Turner Says
Monday, June 2, 2014 6:55 AM

The news on first quarter economic growth was not surprising to most of the market, According to Brian Turner, director and chief strategist with Catalyst Strategic Services. New data released by the Bureau of Economic Analysis, shows the economy contracted during the first quarter. The bureau’s second estimate of GDP showed growth declined at an annual rate of -1.0 percent, down significantly from its first estimate of +0.1 percent, making Q1 the worst quarter in more than three years.

A -11.7 percent drop in private investment was the main culprit in the measure, Turner says. The sudden drop is understandable as investment growth had averaged +9.6 percent over the previous three quarters (including a +17.2 percent peak in Q3). The +3.1 percent growth in consumer spending, he says, should be the headline for the Q1 report, marking the second consecutive quarter spending growth has surpassed +3.0 percent.

“Consumer spending accounts for two-thirds of the nation’s GDP and is the main driver for credit union loan demand,” Turner notes. “Unfortunately, the Commerce Department reported spending declined -0.1 percent in April, so the second quarter has started with more of a whimper rather than a roar.”

Economists believe the economy will rebound to hit a projected growth of +2.8 percent during the second half of the year.

“With mortgage originations down nearly 40 percent this year, this may not give the credit union industry enough time to realize broad-based loan growth in 2014,” he adds. “A strong showing this summer and fall in consumer loan demand will be the determining factor.”

The bureau will release its third (and final) measure on June 25th. Despite the setback, many economists expect economic growth to rebound to a 2.8 percent annual rate during the second half of the year. They put the blame for Q1’s weak showing on adverse weather conditions and declines in inventory investments.

Real personal consumption expenditures increased +3.1 percent in Q1, compared to the +3.3 percent showing in Q4. This would put average spending over the past four quarters at +2.6 percent, compared with +1.6 percent and +1.9 percent for all of 2012 and 2013.

“A strong upward trend in consumer spending will help stabilize the recovery and promote job growth,” continues Turner.

Other Key Indicators this Week:

  • Consumer Spending – Declined -0.1 percent in April, the first monthly drop in a year after a revised 1 percent gain the previous month. The release of pent-up demand drove higher growth in March.
  • Home Prices –The S&P/Case-Shiller home price index shows average home prices have increased +12.4 percent, the fifth consecutive monthly decline in the year-over-year measure.