- The U.S. economy grew at a faster pace in the first quarter (Q1) than previously reported. The Commerce Department stated that the second revision for Q1 GDP came in at an annual rate of 1.2%, up from 0.7% in the advance estimate. Growth of consumer spending remained modest but was revised up slightly. An already strong business investment gain improved to 11.4%, marking the strongest quarterly increase in five years. While Q1 growth slowed from the 2016 Q4 pace of 2.1%, there are signs of a pickup in the Q2. The Atlanta Fed’s forecast for Q2 GDP growth currently stands at 3.0%. We anticipate GDP growth in the range of 2.5% – 3% for the full year.
- Upbeat indicators bode well for the second quarter. Existing home sales in March increased at the fastest pace in a decade, the unemployment rate dropped to its lowest level since 2001, and solid consumer spending gains at online retailers showed broad based growth. Industrial production, a measure of output at factories, mines, and utilities, rose 1.0% from a month earlier, the largest gain in more than three years. Manufacturing output, the largest component of industrial production, posted a strong gain pushing the index to a post-recession high. Overall capacity utilization increased to 76.7% but remains below the long-term average of 80%, a sign that the economy is operating below its current potential.
- The May jobs report sent a mixed message. The unemployment rate declined to 4.3%, its lowest level in 16 years, but it fell because 429,000 people dropped out of the labor force. The U.S. economy added 138,000 jobs in May, less than the 174,000 jobs gained in April, but greater than the 100,000 jobs per month needed to keep up with the growth in the working-age population. Monthly job numbers can be volatile. The long-term trend remains positive and overall, the evidence suggests that the labor market is cyclically tightening.
- The Federal Open Market Committee last met on May 2-3 and members left the benchmark rate unchanged. They acknowledged the sluggish pace of growth at the start of the year, but stated, “The Committee views the slowing in growth during the first quarter as likely to be transitory.” Expectations are for at least two more 25 basis point increases this year. The Committee will meet on June 13-14. We anticipate the next increase in the federal funds rate will be at that meeting.
* This commentary reflects the opinions of Welch & Forbes based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation.
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