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Clarksville, TN – GDP growth was revised to a -2.9% annual rate in the third estimate for 1Q14 (vs. -1.0% in the 2nd estimate and +0.1% in the advance estimate).
Prior estimates showed that a slower rate of inventory accumulation and a wider trade deficit subtracted considerably from overall growth – the third estimate showed a somewhat larger subtraction of 3.2 percentage points from the headline GDP growth figure (Domestic Final Sales, GDP less net exports and the change in inventories, rose at a 0.3% annual rate).A decrease (rather than an increase) in consumer spending on healthcare helped push the headline GDP figure lower. Investors were willing to dismiss the bad 1Q14 GDP number. After all, it was at odds with almost all other pieces of economic data, especially nonfarm payrolls and weekly jobless claims. There’s no indication of recession here.
However, personal income and spending figures for May suggested a restrained rebound in 2Q14. Inflation-adjusted consumer spending fell 0.1% in May, following a 0.2% decline in April.
These figures will be revised (annual benchmark revisions to the monthly figures are due on August 1), but taken at face value, they suggest that inflation-adjusted consumer spending (70% of GDP) is tracking at about a 1.4% annual rate – a lot less than was expected a month ago (despite good strength in motor vehicle sales). One major concern heading onto the second half of the year is that average wage gains are barely keeping pace with inflation – that limits the potential improvement in consumer spending growth.
Next week, we get fresh June figures in the holiday-shortened week. The focus is expected to be on the employment report, which has been moved up a day due to Friday’s holiday. Note that seasonal adjustment can be tricky in June, due to the end of the school year – so take any surprises with a grain of salt (they may be reversed in the report for July).
Janet Yellen will speak on “financial stability” to the International Monetary Fund on Wednesday – given the audience, this is unlikely to be a “message to the markets” kind of speech. The markets will close early on Thursday, ahead of the three-day weekend.
Consumer Money Rates
Treasury Yield Curve – 6/27/2014
S&P Sector Performance (YTD) – 6/27/2014
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Tax Equiv Muni yields (TEY) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.
The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business June 26th, 2014.
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