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U.S. economy misses estimates increasing worries that the trend is headed in the wrong direction
05/31/2012 2:38 pm EST
Initial claims for unemployment for the week ended on May 26, for example, climbed to 383,000. That was up from 373,000 (after revisions) for the prior week. Economists surveyed by Briefing.com had been expecting that initial claims would drop to 368,000. Excluding the weeks around Easter when seasonal adjustments seem to have artificially inflated claims, this week’s number is the highest since the first week in January. The less volatile four-week moving average edged up this week to 375,000 from the 371,000 average in the prior week.
Two big worries here. First, that today’s week report on initial claims for unemployment foreshadows a weaker than expected jobs report from the Bureau of Labor Statistics tomorrow morning. Second, that we’re seeing the start of a trend with indicates that the rate of job creation is falling again.
If you were nervous about the U.S. economy after this data, the release today of the second read on U.S. GDP growth may have pushed you over the edge. According to this morning’s revisions from the Bureau of Economic Analysis, U.S. GDP growth in the first quarter was actually 1.9% instead of the 2.2% reported in the previous estimate. That’s a drop from the 3.0% annual rate in the fourth quarter of 2011 and below the 2.0% expected by a consensus of the economists surveyed by Briefing.com.
The economy looked weaker on this revision almost across the board with consumer spending at 2.7% instead of 2.9% and inventory growth at $57.7 billion instead of $69.5 billion. But the big ding came from a drop in government spending, which showed a decline of 3.9% instead of the earlier 3.0% drop. The biggest drag on government spending came, as has been true for quarters now, from spending by state and local governments. With state and local tax revenues still depressed, spending at that level fell at a 2.5% annual rate in the first quarter on this revision, down from the 1.2% drop reported earlier.
The only good news I could find in this revision came in investment spending. Investment spending in fixed assets was revised up to a 4.9% annual growth rate from 1.4% growth in the earlier version of this data. Nonresidential investment climbed to 1.9% growth from a 2.1% decline in the prior data and residential investment grew at a 19.4% annual rate, up from 19.1% previously.
1.9% growth instead of 2.0% isn’t a huge shift but with European economies moving into a deeper recession and worries about China’s growth rate making the rounds, a lower than expected growth rate will certainly increase current pessimism.