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Economic Update May/June 2019

Strong Economic Growth In Q1 But Slowing In Q2….

The most recent estimate for GDP growth in the first quarter of 2019 was quite strong at 3.1%, up from 2.2% in the fourth quarter of 2018.  Much of the GDP growth in Q1 was from a buildup of inventories and net export of goods. Many have speculated that the buildup of inventories was related to the prospect of the tariff increases that have made headlines in the past several months. If that was the case then a reduction of inventory should have a negative impact on growth in future quarters.  Personal spending, one factor of the GDP which probably most directly relates to home improvement spending, was up only 1.2% in the first quarter, slower than levels seen in 2018.

For the second quarter of 2019, the latest GDPNow forecast from the Atlanta Fed shows only a projected a 1.3% growth.  Recent economic data has been weak, including the durable goods report, which has resulted in economists reducing their estimates for growth in the second quarter.

…However Jobs and Consumer Confidence Remains Strong…

The Conference Board’s Consumer Confidence index for May increased to 134.1 from 129.2 in April and is close to the 18 year high seen in the fall of last year.  The most recent data from another consumer confidence index from the University of Michigan was 100.0, up from 97.2 in April.  The May reading was the highest since 2004.

Meanwhile jobs remain plentiful as the economy added 263,000 in April for an average gain of 205,000 jobs through the first four months of the year.  The unemployment rate was 3.6% which is the lowest rate since 1969.  An additional positive for consumers from the employment report is that average hourly earnings gains continued to be healthy, up 3.2% over the past year.

…But Housing Is Slowing…

Despite lower mortgage rates, existing home sales declined for the second straight month in April down 4.4% compared to April 2018 based on data from the National Association of Realtors.   Regionally, the Northeast declined 4.5%, the Midwest declined 7.9%, the South dropped 0.4% and the West grew 1.8%.  Despite slower sales of existing homes, the average price for homes continues to increase, albeit at a slower rate.  The latest S&P CoreLogic Case-Schiller National Home Price Index indicated that price appreciation for March slowed for the 15th straight month to 3.7% compared to March 2018.

…Consumer Loans Still Performing Well…

The S&P/Experian Consumer Credit Default Index which measures default rates across autos, mortgages and bankcards remains at low levels, 0.88% as of the end of April.  The index has been between 0.81% and 0.96% for the past three years.  To put this level in some perspective following the Great Recession it was at 5.28% for April 2009, 3.85% for April 2010 and 2.3% for April 2011.