U.S. 1Q'08 GDP Revised Up Slightly, Profits Rose

U.S. real GDP growth during 1Q'08 was revised slightly higher to 0.9%, as expected. The rise followed a 4Q '07 increase of 0.6% and, together, the figures still are the weakest since near the end of the recession year of 2001.

Corporate profits are estimated to have risen at a 1.3% (1.7% y/y) annual rate after declining at a 12.4% rate in 4Q and at a 4.9% rate in 3Q. Earnings in the financial sector continued lower at a 2.9% (-12.2% y/y) rate following declines of 48.3% in 4Q and -22.7% in 3Q. U.S. nonfinancial sector earnings rose all of 1.7% (-2.6% y/y) but that gain also followed two quarters of sharp declines. The gain in foreign sector earnings slowed considerably to a 5.1% (34.9% y/y) rate after outsized increases during each of the prior five quarters.

In the GDP accounts, revisions to trade and inventories offset one another in their effect on 1Q GDP growth. An improved foreign trade deficit added 0.8 percentage points to growth, up from the earlier estimate of a 0.2 percentage point addition, though growth in exports was lowered to 2.8% (8.8% y/y) from 5.5%. Imports are now estimated to have declined at a 2.6% rate (-0.6% y/y) instead of rising 2.5%.

Inventory accumulation is now estimated to have added 0.2 percentage points to 1Q GDP growth, down from the last reading of a 0.8 point addition.

Most of the 1Q weakness in final sales to domestic purchasers was preserved. They now are estimated to have ticked down at a 0.1% rate versus the last estimate of -0.4% growth. These figures are still the first sub-zero readings since the earlier recession in 1991.

The decline in residential construction was still quite severe. Activity declined at a little revised 25.5% (-20.9% y/y) rate which was about equal to the drops in 4Q and 3Q. These are the quickest rates of decline since the recession in 1981 and the 1Q drop reduced overall real GDP growth by 1.2 percentage points.

Business fixed investment also fell at 0.3% (+6.4% Y/Y) rate which was less than the 2.5% shortfall estimated earlier. It still was the first negative growth, however, since 4Q'06 and the largest negative reading since early 2004. Overall it reduced 1Q GDP growth by less than 0.1 percentage points. Investment in structures grew 1.1% (13.7% y/y) while equipment investment fell 0.9% +3.3% y/y).

Growth in real personal consumption was unrevised at 1.0% (1.9% y/y) growth which was its weakest since the recession year of 2001. Spending on autos & light trucks fell at a 13.5% (-4.9% y/y) rate while spending on furniture & other household equipment ticked up at a quite weak 0.6% (4.9% y/y) rate. Spending of clothing rose 1.7% (1.6% y/y) and spending on services rose 3.0% (2.7% y/y). Growth in real PCE added 0.7 percentage point to 1Q real GDP growth and that was its weakest contribution since the recession of 2001.

The GDP chain price index was unrevised at a 2.6% annual rate which was its fastest gain in three quarters. The PCE price index rose at a 3.5% rate (3.4% y/y) which was down slightly from the 3.9% rise in 4Q. Less food & energy consumer prices rose at a 2.1% rate which was stable with growth during the prior four years. The price index for business fixed investment rose at a 0.2% rate and residential investment prices fell at a 2.3% (-0.9% y/y) rate which was the fastest rate of decline since 1970 (still not a typo).

Last week initial claims for unemployment insurance again ticked up, by 4,000 to 372,000 following the prior week's 6,000 decline. Consensus expectations had been for claims to total 370,000 last week.

The four week moving average of initial claims fell slightly week-to-week to 370,500 (231.5% y/y). Claims averaged 364,000 during April.

A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last ten years there has been a (negative) 76% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.

Continuing claims for unemployment insurance rose a large 36,000 after a 5,000 decline during the prior week. The latest level was the highest since March 2004. It provides some indication of workers' ability to find employment.

The continuing claims numbers lag the initial claims figures by one week.

The insured rate of unemployment held steady at 2.3% for the fifth week. That was the highest since 2004.

The index of help-wanted advertising reported by the Conference Board held last month at its record low of 19.

During the last ten years there has been a 57% correlation between the level of help-wanted advertising and the three month change in non-farm payrolls.

The proportion of labor markets with rising want-ads also held at its downwardly revised March level of 35%. The latest was improved from 12% in August of lat year which was the lowest monthly reading since October 2001.

Each region of the country held steady with the March level except the East South Central where the index fell.

The Conference Board surveys help-wanted print advertising volume in 51 major newspapers across the country every month. The latest help wanted report from the Conference Board is available here.

In 2006, the Conference Board introduced its Help Wanted Online Data Series and the latest release can be found in this link.

Regulation and the Neo-Wicksellian Approach to Monetary Policy from the Federal Reserve Bank of Dallas is available here.

Japan’s retail sales have been floundering and in a downtrend since 2005. But in December of 2007 and January of 2008 sales suddenly spiked. They have since settled back down into the sleepy pattern we have been used to. Indeed, sales are weakening sharply in 2008-Q2 after a sales surge in 2008-Q1. Sales spiked to a 3.2% annual rate in Q1 on the back of a 12.7% pace of sales in the auto sector. But in 2008-Q2 sales are starting out quite weak at an annual rate pace of -0.8%. Auto sales are falling at a -2.7% annual rate. Fabric and apparel retail sales are off at a 15.6% pace in the new quarter. The sales boom in Japan appears to have been quite short-lived.