Weekly Economic Release Summary - Q1 2019 Economic Growth Overstated

May 04, 2019 11:55 AM ET2 Comments6 Likes
Steven Hansen profile picture
Steven Hansen


  • The FOMC meeting statement issued this past week included the statement "that economic activity rose at a solid rate".
  • The FOMC were inferring that the economy was stronger in 1Q 2019 than the previous quarter.
  • The components of GDP do not support that the economy was stronger.

This week econintersect.com posted its May 2019 economic forecast - and its trend has significantly deviated from the GDP trendline. The Federal Reserve thought the economy improved in 1Q 2019 evidently ignoring that the GDP internals were weak.

Based on Real GDP growth numbers seen since the Great Recession, 1Q 2019's 3.2% percent growth was one of the best.

To analyze GDP, I divide GDP into five components. The important Main Street components are personal consumption, fixed investment, and government spending. The trade balance is a ledger component for a spreadsheet - and has little effect on people's daily lives. I refuse to believe overproduction (growing inventory) is a good thing for Main Street. Here is the breakdown of contributions to percent change of 1Q 2019 3.2% Real GDP growth:

  • Consumption for goods and services improved adding 0.8% to GDP.
  • Trade balance improved adding 1.0% to GDP.
  • Inventory change added 0.7% to GDP.
  • Fixed investment added 0.3% to GDP.
  • Government spending added 0.4% to GDP.

It is obvious from the above chart that the combined growth of personal consumption, fixed investment, and government spending was weak. And further, consider that the reason government spending was strong was the payment transfer from 4Q 2018 to 1Q 2019 due to the government shutdown.

Still, year-over-year GDP growth (not the quarter-over-quarter analysis used in headline GDP) remains relatively strong - and there is no indication that a recession is knocking on the door. I am simply disputing the Federal Reserve's statement "that economic activity rose at a solid rate." Specifically: "rose" - yes; "solid rate" - suspect.

Likely the Fed did not want to say the economy weakened, and get into a twitter fight with the President over the federal funds rate and quantitative easing.

Economic Releases This Past Week

The Econintersect Economic Index for May 2019 long-term decline began in July 2018 - and continued this month after last month's marginal improvement. This forecast flies in the face of the continuing improvement trend of Real GDP. There currently is a disconnect between GDP and the Econintersect Economic Index. Part of the reason is that GDP adjusts for trade, and we believe imports are an essential element of economic activity on Main Street. Further, GDP believes economic activity includes inventory, whilst Econintersect ignores inventory. If imports and inventory were ignored - GDP growth would have been less than half of the headline number.

The following table summarizes the more significant economic releases this past week.

Economic Release Summary For This Week

Release Potential Economic Impact Comment
February and March Personal Income and Expenditures Mixed

The headline data for February and March shows a decline in income and an increase in expenditures.

Consumer income growth year-over-year is now much less than the spending growth year-over-year. For sustained growth of expenditures, income needs to grow at nearly the same rate.

Savings growth significantly weakened.

The real issue with personal income and expenditures is that it jumps around - and one cannot take any single month as fixed or gospel. This month all trendlines reversed (income Vs. expenditures)

March Sentier Median Personal Income Shows no income growth

After adjusting for price changes, median household income for March of this year was $635 (or 1.0 percent) lower than January 2019. The median is only 3.5 percent above the median of $61,254 for January 2000, the beginning of this statistical series.

Median household income for March 2019 was 1.5 percent higher than March 2018, when the median stood at $62,473.

February Case-Shiller Home Prices n/a

The non-seasonally adjusted S&P CoreLogic Case-Shiller home price index (20 cities) year-over-year rate of home price growth slowed from 3.5% last month (revised down from 3.6%) to 3.0%. The index authors stated "Sales of new homes, housing starts, and residential investment had similar weak trajectories over the last year. Mortgage rates are down one-half to three-quarters of a percentage point since late 2018".

March Pending Home Sales n/a

The National Association of Realtors (NAR) seasonally adjusted pending home sales index remains in contraction but improved.

The rolling averages remain in negative territory. The data is very noisy and must be averaged to make sense of the situation. The long-term trends are mixed depending on the periods selected. Note that the long-term downward trend of home sales began in mid-2015.

April ADP Employment Strong growth

ADP reported non-farm private jobs growth at 275,000 which was well above the range of expectations. A quote from the ADP authors:

April's job gains overstate the economy's strength, but they make the case that expansion continues on.

March Construction Spending Slow growth

The headlines say construction declined month-over-month. Our analysis shows the rolling averages marginally improved.

The rolling averages marginally improved - and last month was revised down. Also note that inflation is grabbing hold, and the inflation-adjusted numbers are deep in contraction.

FOMC Meeting Statement Economy improved?

The Federal Open Market Committee (OTCPK:FOMC) - the board of directors of the Federal Reserve made no change to the federal funds rate as expected, and stated:

.... Information received since the Federal Open Market Committee met in March indicates that the labor market remains strong and that economic activity rose at a solid rate. ....

Overall, the Fed appears to believe the economy has somewhat strengthened since the last meeting - but there is little new information to chew on in this meeting statement.

April Challenger Job Cuts ????

U.S.-based employers announced plans to cut 40,023 jobs from their payrolls in April, down 34% from the 60,587 cuts announced in March. This is the lowest monthly total since last August, when 38,472 cuts were announced.

Despite the monthly drop, April cuts are up 11% from the same month last year, when 36,081 cuts were announced. So far this year, employers have announced 230,433 job cuts, 31% higher than the 176,280 announced in the first four months of last year.

1Q 2019 Productivity and Costs Huge gain in productivity

A simple summary of the headlines for this release is that productivity growth significantly improved and labor cost growth significantly slowed.

The overall view this quarter is that productivity is up 2.4% from the same quarter one year ago (last quarter productivity was up a revised 1.3%), while unit costs are up 0.1% (last quarter labor costs were up a revised 2.5%).

March Factory Orders Inflation-adjusted data in contraction

US Census says manufacturing new orders improved month-over-month. Our analysis shows the rolling averages declined.

According to the seasonally adjusted data, it was civilian/military aircraft and ships which caused the improvement. The data in this series is noisy so I would rely on the unadjusted 3-month rolling averages which declined.

Remember the headline numbers are not inflation adjusted - and the inflation-adjusted year-over-year numbers are in contraction; however, the rolling averages remain in positive territory.

April BLS Employment Employment growth improved but...

The headline seasonally adjusted BLS job growth was again was above expectations for the establishment employment growth. But on the other hand, both the employment-population ratio and the participation rate declined which indicates a declining employment level.

The establishment and household surveys continue to come from different dimensions. For the third month in a row, these surveys which are the basis of the monthly jobs report do not match with one actually contracting and the other growing significantly. This is the major reason that the unemployment rate declined.

The economically intuitive sectors were mixed. The rate of year-over-year employment growth of the establishment survey improved. The year-to-date employment growth remains under last year but improved.

Surveys Generally lower

Dallas Fed Manufacturing - This survey remains in positive territory with subindices new orders improving (in expansion) and unfilled orders unchanged and marginally in contraction. There was a marginal improvement in the general index, and this report should be considered somewhat better than last month because of the improvement in new orders.

Chicago Purchasing Managers Index - The Chicago Business Barometer fell 6.1 points to 52.6 in April, down from 58.7 in March to the lowest level since January 2017.

Conference Board Consumer Confidence - The latest Conference Board Consumer Confidence Index's headline number is 129.2 (1985=100), up from 124.2 in March.

Markit and ISM Manufacturing - The ISM Manufacturing survey declined but continued in expansion. The key internals were mixed. The Markit PMI manufacturing Index remained in positive territory and insignificantly improved. The ISM and Markit manufacturing surveys were mixed this month but their levels were similar.

Markit and ISM Services - Both services surveys are in expansion - and both declined this month. These are weaker reports than last month.

Weekly Rail Counts Definitely not positive news

Rail so far in 2019 has changed from a reflection of a strong economic engine to contraction. Currently, not only are the economic intuitive components of rail in contraction, but the year-to-date has slipped into contraction.

This article was written by

Steven Hansen profile picture
Steven Hansen (A.K.A "The Hand") was born, raised and educated in California. Steven worked for 25 years for a major international engineering and construction corporation. He has lived outside of the USA almost continuously since 1978. Steven retired in 1995 to sail the world. He is still sailing today and is currently located in Malaysia. On the financial side, Steven is a pragmatist. His motto is to "go with the flow" and believes that the only correct investing method is one which makes you money both short and long term. He does not fall in love with philosophies – only results. He has invested well enough to retire at 45 and stay retired.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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