- Inflation posted the highest year-over-year change since January 1982.
- Jobless claims dropped to their lowest level since February 1970.
- Consumer plans to purchase a vehicle in the next six months increased to the highest level in three months but was slightly lower than a year ago.
Real GDP declined in the first quarter but mainly because of net exports and declining inventories. Consumer spending remained robust.
Consumer spending in March, in fact, accelerated and even showed growth on an inflation-adjusted basis over February and last year. Incomes are also growing at a healthy pace supported by every factor but unemployment benefits.
That decline in unemployment benefits is a result of continuing jobless claims being at the lowest level since February 1970.
The housing market saw further declining momentum in March, as surging mortgage rates impact affordability, compounding price increases.
Sentiment metrics were mixed in April, with some showing gains and others declining. The daily index from Morning Consult has shown ups and downs in April, with the month down slightly through last Friday but unchanged from the previous week.
Tax refund season has started slowly this year but delivering higher refunds. The month of May will be seeing an abnormal amount of refunds still being distributed as normally refunds are all but done by the end of April.
Economic growth declines: The initial estimate of first-quarter real GDP measured a decline of 1.4% annualized, which was an abrupt reversal of the strong growth of 6.9% in the fourth quarter of 2021. Personal consumption accelerated to growth of 2.7% from 2.5% in the prior quarter. Spending on goods declined 0.1%, while spending on services accelerated to growth of 4.3%.
Surging imports made net exports the primary factor that caused the real GDP decline along with declining inventories. Government spending also declined at a similar pace to the prior quarter. Gross private investment increased 2.3%, which was a major deceleration from the 36.7% gain in Q4 driven by inventory rebuilding. With the decline in Q1, real GDP was up 3.6% from a year ago.
Spending accelerates: Consumer spending growth accelerated in March to a 1.1% increase from an increase of 0.6% in January, as overall spending remains resilient despite inflation pressures. However, spending is reflecting a shift away from goods and into services.
Income growth was a healthy 0.5%, with all factors positive except payments from unemployment benefits. Wages grew 0.6%, proprietors’ income grew 0.8%, and rent income grew 0.7%. Spending on durable goods declined 1.0%, but spending on nondurable goods increased 2.5%, and spending on services increased 1.1%. In March, spending on motor vehicles and parts declined 3.1%, following a 4.6% decline in February.
The personal savings rate declined to 6.2%, with the increased spending outpacing income growth. The savings rate averaged 7.5% in the 12 months leading to the pandemic but averaged 14.1% over the 24 months ending in February.
The Personal Consumption Expenditure Index (PCE), the key gauge of inflation that the Fed follows, increased 0.9% in March, as expected. This was an acceleration from the downwardly revised 0.5% increase in February. Overall price inflation, according to the PCE, increased to 6.6% in March from a year ago, which was the highest year-over-year change since January 1982.
Home sales fall: New home sales, which are based on new contracts signed on newly constructed homes, declined a worse than expected 8.6% in March. New home inventory increased 3.8% from February and was up 33.4% from a year ago. With the slower sales pace, new-home supply increased to 6.4 months, which was the lowest level since October.
In March, 33% of the new homes sold were on homes not yet started, while 43% were under construction, and 23% were completed, finished units. With the decline in each month so far this year, new home sales were down 12.6% from a year ago but were up 5.8% compared to 2019. Pending home sales, which are new contracts signed on existing homes, declined 1.2% in March from February, leaving pending sales down 8.2% from a year ago. Tight supply, record prices and mortgage rates moving higher all suggest existing home sales will continue to decline in the months ahead.
Jobless claims drop: As of April 16, 1.41 million people were on traditional unemployment benefits. Continuing claims declined by 1,000 in the last week and are down 98,000 over the previous four weeks to a level that is 355,000 lower than before the pandemic began and at the lowest level since February 1970.
New initial claims declined by 5,000 to 180,000 for the week ending April 23. Weekly initial claims had averaged 212,000 in the first 11 weeks of 2020 leading up to the pandemic. At last week’s pace, new claims are 17,000 lower than the pre-pandemic pace.
Consumer sentiment slips: Consumer Confidence, according to the Conference Board, declined 0.3% in April, erasing some of March’s 1.8% gain. The decline left confidence down 8.7% from a year ago. The underlying measures of present situation and future expectations moved in opposite directions as present situation declined, but future expectations improved.
Jonathan Smoke is the chief economist at Cox Automotive.