Weekly Economic Watch

– Real GDP rose 0.1% in April, in-line with expectations (but beating our estimate of -0.1%). This was still the weakest monthly increase since last December. In April, the goods-producing sector recorded a contraction of 0.3%, due to weakness in mining & energy (-1.5%) and construction (-0.4%). Surprisingly, manufacturing recorded an increase of 0.2%. In services, output was up a robust 0.3%, the best showing since January. The rise was widespread. The April GDP report was encouraging in that it showed resilience in the domestic economy as echoed by the performance of the service-producing industries. This is certainly a mitigating factor for the current weakness in the goods-producing industries and public administration (down three months in a row). We are encouraged to see a slight rebound in manufacturing where output is up 1.6% so far in Q2 following a contraction of 0.9% in Q1. It seems that the story of a better contribution from exports is unfolding, albeit at a relatively slow pace. After one month in Q2, GDP is expanding at an annualized rate of 1.6%.

In April, average weekly earnings of non-farm payroll employees reached $910, up 0.2% from the previous month and 2.2% from 12 months earlier.

United States – The durable goods report showed orders rose 3.6% in May, a tad higher than expected by consensus. Adding to the good news, the prior month’s growth was revised up to 3.6% as well. May’s increase was driven primarily by the transportation category, which soared 10.2% as aircraft orders (non-defence aircraft orders shot up a stunning 51%) more than offset a drop in motor vehicles and parts orders (-1.2%). Excluding transportation, orders crawled up a more subdued 0.7%.

This nevertheless flew in the face of consensus, which had expected a dip. Orders of non-defence capital goods excluding aircraft climbed 1.1% for a third consecutive increase. Total shipments of durable goods rolled ahead 1.2%, more than making up for the 0.6% retreat the prior month. Shipments of non-defence capital goods ex-aircraft progressed 1.7%, nearly erasing the prior month’s 2% pullback. All told, the May durable goods report surpassed expectations, with orders topping consensus and shipments in decent territory. However, despite these results, shipments of non-defence capital goods excluding aircraft, a proxy for business investment, is showing some moderation in Q2 after pushing forward vigorously in Q1. This suggests that the U.S. economy has decelerated slightly in Q2. Still, the strong new orders could mean better June shipments and a good handoff to Q3.

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