Real GDP rose 1.9% in the first quarter, the same as was reported last month. Imports were revised down and business investment was revised up, relative to previous estimates of GDP; this is welcome news, given how reluctant businesses have been to bet on the U.S. economy since the start of the recovery. Those gains were offset, however, by downward revisions to consumer spending, exports and inventories. The downward revisions to consumer spending and exports are particularly troubling, as they suggest consumers were less inspired by job gains and unusually warm winter weather in the first quarter than previously thought, while the drag associated with weaker global economic conditions had begun to emerge earlier.
Separately, weekly jobless claims fell to 386,000 last week, down 6,000 from the previous week, which hit 392,000. The four-week moving average remained about the same at 386,750, up significantly from the start of the year when claims were moving into the mid-300,000 range. Claims also remain below the elevated levels of 425,000 a year ago. Much of that improvement, however, is due to a drop in the number of people eligible for extensions to their unemployment insurance, rather than a decrease in layoffs. The results suggest another disappointing employment report for the month of June, due to be released July 6.
Bottom Line: The recovery remains extremely rocky, and although this summer’s data is not as bad as last summer’s data, the risks we face are even greater. European leaders are meeting today and we hope will come up with more tangible solutions to save the euro than they have in the past. Their implementation schedule, however, could still be too slow for market participants and not enough to stem panics in key markets. This is to say nothing of the inaction in Washington. Congress does look poised to come in with an eleventh-hour extension to the cap on student loans, and pass the highway bill (without earmarks) by the end of the week, but not much more. The “fiscal cliff” still looms.