The Recovery Marches On

by: Dr. Scott Brown

Excerpt from Raymond James Economist Dr. Scott Brown's latest economic commentary:

Real GDP rose at a 3.0% annual rate in the revised estimate for the first quarter, down from 3.2% in the advance estimate, although the story didn’t change much. This was the third consecutive quarterly increase in real GDP. More importantly, the economy appears to be transitioning to a more sustainable recovery, less reliant on the shift in inventories and the government’s fiscal stimulus, and supported more by consumer and business demand. Job growth, a key element in a sustainable economic recovery, has returned. Unfortunately, the economy still faces a number of headwinds in the near term.

The National Bureau of Economic Research’s Business Cycle Dating Committee has yet to announce the ending date for the recession. Most likely, it will be June of last year. The end of the recession does not mean that everything is wonderful again. It simply acknowledges that the economy is no longer contracting. The job market is years away from a full recovery.

Data for April and early May suggest that the expansion has continued, albeit at a moderate pace, into 2Q10. Inflation-adjusted consumer spending, which accounts for 70% of Gross Domestic Product, was unchanged in April, but that followed strong gains in February and March. Moreover, the softness in April spending was due to a rebound in the savings rate. There’s a fair amount of noise in these data, and the early Easter may have had some impact, but inflation-adjusted consumer spending is likely to rise at a 2.5% to 3.5% annual rate in the current quarter. The key to sustainable growth in spending is job growth, which appeared to turn the corner in recent months.

Shipments of nondefense capital goods ex-aircraft, a rough proxy for business fixed investment, edged up just 0.2% in April (advance estimate). This softer increase followed gains of 2.3% in both February and March. So the April pause is not necessarily indicative of a recovery running out of steam.