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GDP (Q1 preliminary): upward revision due to inventories and net exports

Mon, May 25 2009, 10:01 GMT
by BHF-Bank Economics Department

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• Consumer confidence indicators (May): still at low levels despite improvement

• Durable goods orders (Apr): stabilising after three very weak quarters

•  GDP (Q1 preliminary): upward revision due to inventories and net exports

Despite the ongoing deterioration on the labour market, the Conference Board’s consumer confidence rose by 12.3 points to 39.2 in April. But the indicator remained very low compared to the University of Michigan’s (UMI) consumer sentiment, and we thus forecast that consumer confidence will have increased further, albeit only slightly, to about 42.0 in May. But UMI’s final May consumer sentiment could be revised down from 67.9 to 66.0, because of the recent surge in gasoline prices, which reached $2.30 per gallon by the middle of the month – an increase of more than 10% since the end of April.
Moreover, the weekly ABC consumer comfort poll has lost 10 points since the beginning of the month.

Existing home sales dropped more sharply than expected in March, from 4.71m to 4.57m. However, given that pending home sales increased again by 3.2% mom in March, we expect existing home sales to have followed suit. They could have gone up from 4.57m to about 4.65m in April, driven particularly by foreclosures. In addition, tax incentives, low mortgage rates and increased affordability are also supporting sales. The same goes for new home sales, which are expected to have risen to about 365k in April, after having remained more or less stable in March. However, the high level of inventories of homes for sale indicates that the tentative stabilisation in sales will not translate immediately into an increase in construction activities.

Durable goods orders have been weak since summer 2008, and they were down by about 25% yoy in March. However, as the graph illustrates, the ISM manufacturing’s new orders component recovered to 47.2 in April, approaching the expansion threshold. According to Boeing, aircraft orders could have increased, and the rise in vehicle production indicates that automobile orders could have at least remained stable. We thus forecast that durable goods orders will have remained unchanged in April. Durable goods orders ex transportation could have decreased by about 0.5% mom.

Initial jobless claims fell by 12k to 631k in the week ending 16 May. We expect them to have risen again to 640k in the week ending 23 May, due to the temporary impact of the automotive shutdowns, but to have remained well below their peak level of 674k at the end of March. But as the ongoing rise in continuing claims shows, the labour market situation is still extremely unfavourable, despite the fact that jobless claims have stabilised somewhat.

In the advance release for Q1, the Commerce Department reported that GDP had fallen by an annualised 6.1% qoq, roughly the same pace of decline as in Q4. Particularly striking in the 1st quarter were the negative contributions from non-residential investment (–4.7 percentage points) and inventory investment (–2.8 percentage points). But private consumption and net exports in particular contributed positively; the latter only because imports fell much more sharply than exports. Given that the real trade deficit increased slightly in March, the contribution of net exports could have been even higher.
In addition, it is now known that retail inventories fell much less markedly than had been estimated. We therefore expect the preliminary Q1 GDP figures to be revised up to –5.3% qoq.

The Chicago PMI rose from a low of 31.4 to 40.1 in April. Another, albeit more moderate, improvement to about 43 seems possible in May, given the rebound in the first regional manufacturing indices and the fact that small business optimism recovered in April for the first time in eight months.

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Published on  Mon, May 25 2009, 11:24 GMT

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