Weakending Economy + Gov’t Spending Cuts + High Taxes = Recession? GDP And Durable-Goods Orders Both Came In Substantially Weaker Than Expected
Less than an hour ago we speculated that “it wouldn’t be surprising for GDP to come substantially weaker than expected, only to be revised higher (or lower) subsequently.” Sure enough, we have gotten at least the first part right for now, with the advance Q1 GDP number printing a very disappointing 2.5%, on expectations of a 3.0% increase, up from 0.4% in Q4, and the biggest miss since Q3 2011. The reason for the big miss: Inventory and Fixed Investment came well below expectations, comprising 1.03% (of which autos represented 0.24%) and 0.53% of the 2.5% annualized increase GDP. Kiss the great CapEx investment story goodbye.
The only silver lining in today’s otherwise very weak report: Personal Consumption Expenditures, which were a sizable 3.2% versus the 2.8% expected, and amounted to 2.24% or virtually all of the net Q1 GDP growth. So far so good .The bad news, however, is that this number will not sustain into Q2 and look for expenditures to plunge in the coming quarter.
Demand softens for a variety of manufactured products
Orders for durable goods fell a seasonally adjusted 5.7% last month to mark the biggest drop since last August,the Commerce Department said Wednesday.
Economists surveyed by MarketWatch had expected a 3.2% decline.
Durable goods are products designed to last at least three years. These orders are critical component of U.S. growth since rising sales of autos, computers, furniture and so forth signal an improving economy.
The decline in orders is the latest in a string of reports that suggest the manufacturing sector cooled off a bit toward the end of the first quarter — along with the broader economy.
U.S. economic growth regained speed in the first quarter, but not as much as expected, which could heighten fears the already weakening economy could struggle to handle deep government spending cuts and higher taxes.
Economists caution that it is too early to blame the cooling in business investment and other more recent signs of economic softness on the $85 billion in mandatory government spending cuts, known as the sequester, that began on March 1.
Homebuilding marked an eighth straight quarter of growth, though the pace moderated from the fourth quarter. Housing added to growth last year for the first time since 2005 and its recovery should help ensure the economy does not contract.
While export growth rebounded, it was outpaced by imports, resulting in a trade deficit that cut off half a percentage point from output.
The latest available data from the United States Department of Agriculture (USDA) shows that a record number 23 million households in the United States are now on food stamps.
The most recent Supplemental Assistance Nutrition Program (SNAP) statistics of the number of households receiving food stamps shows that 23,087,886 households participated in January 2013 – an increase of 889,154 families from January 2012 when the number of households totaled 22,188,732.