The real Gross Domestic Product (GDP) increased at an annual rate of 2.6 percent in the last quarter of 2018, in accordance with the “initial” estimate released last Thursday, February 28th by the Bureau of Economic Analysis (BEA). This initial estimate replaces the “second” estimate that was supposed to be released last Thursday, while initial reports were intended to be released January 30th, a result of the partial government shutdown. The fourth quarter GDP growth rate was down 0.8 percentage points from the third quarter, due largely in part to decelerations in private inventory investment, personal consumption expenditures (PCE), and downturns in federal and state government spending. However, these movements were partly offset by an increase in exports and an acceleration in nonresidential fixed investment. That being said, the actual fourth quarter GDP report was still stronger than the consensus forecast, which was 2.2 percent.
The Consumer Price Index increased a total of 1.6 percent, the smallest increase seen since the period close of June 2017, as of the 12-month close in January. The index regarding all items rose 2.2 percent over the trailing period of 12 months, while the energy index declined 4.8 percent. The GDP and CPI directly affect one another and are two of the most important aspects of a healthy economy.
The Bureau of Labor Statistics uses the CPI to adjust important economic indicators such as wages, retirement benefits, and tax brackets. While economic growth is preferred, the U.S. Government can only sustain an annual growth rate between 2.5 to 3.5 percent. If growth rate accelerates so does the inflation rate. Calculated using the trailing 12-month CPI, the current inflation rate is 1.55 percent.
U.S. consumer confidence rebounded in February following a tumultuous January. The Conference Board consumer confidence index dropped last month amid worries involving the 35 day-long government shutdown and stock-market volatility, which reflected higher interest rates and paranoia due to trade tensions between the U.S. and China. The consumer confidence index reported by the Conference Board, which measures consumers’ assessment of current economic conditions and forward-looking expectations, rose from 121.7 to 131.4 in February, following a rally in the stock market and a positive outlook regarding current trade talks.
The February Manufacturing ISM report announced a PMI at 54.2 percent. The PMI, or Purchasing Managers’ Index, is an indicator of economic health for manufacturing and service sectors. The PMI is released monthly by the Institute of Supply Management and provides information to company decision makers, analysts, and purchasing managers about current business conditions. It is also based on a survey, consisting five major areas: new orders, inventory levels, production, supplier deliveries and employment, gets sent out to senior executives at over 400 companies.
A PMI reading above 50 percent indicates that the manufacturing economy is generally expanding, while a reading below 50 percent indicates contraction. Typically, a PMI reading above 42.9 percent, over a period of time, indicates expansion of the overall economy. While the February reading was the lowest recorded in the past 12 months, it still represents growth in the manufacturing sector for the 30th consecutive month, and growth in the overall economy for the 113th consecutive month.
Total payroll employment increased by 304,000 in January, while to unemployment rate edged up to 4 percent compared to the previous month’s 3.9 percent. That being said, average hourly earnings of all private-sector employees rose over the month, following a 10-cent gain in December. Over the past 12 months, hourly earnings have risen a total of 3.2 percent. We saw the largest employment increase of 74,000 this past month in the leisure and hospitality industries, with the smallest change seen in government employment, showing an increase of only 8,000.
In brighter news, the employment-population ratio – the proportion of the population that is employed – is now 19.1 percent among those with a disability, as reported by the U.S. Bureau of Labor Statistics. This shows a .4 percent increase from last year’s employment-population ratio among disabled people in the U.S. Among disabled persons aged 16-64, this ratio rose 30.4 percent in total in 2018.
All in all, the health of the U.S. economy is making a steady comeback from the recent lows hit in the last quarter of 2018. Looking ahead, we plan on seeing continuous mature growth throughout the remainder of the year, stabilizing the overall economy. Keep an eye out for updated GDP estimates for the fourth quarter, based on more complete data, being released on March 28th.
By Paige Goulden, Portfolio Management Junior Analyst - Baruch IMG