Economy Watch: GDP Contracts in Q1

By Dees Stribling, Contributing Editor

Real U.S. gross domestic product decreased at an annualized rate of 1 percent in the first quarter, according to the Bureau of Economic Analysis’ second estimate on the metric, which was released on Thursday. In the fourth quarter of 2013, real GDP increased 2.6 percent.

The second estimate is based on more complete source data than the “advance” estimate last month, which found that real GDP increased 0.1 percent. The new estimate reflected a downward revision in private inventory investment and an upward revision to imports (a subtraction from GDP) that were partly offset by an upward revision to exports.

In short, businesses bought less to stock their inventories in the first quarter than in the previous quarter. According to the first estimate of GDP, private inventories subtracted 0.57 percentage points from GDP. The revision found that private inventories subtracted 1.61 percentage points. Business inventory spending tends to bounce around, however, and it’s already showing signs of increasing in the second quarter.

Pending home sales edge up in April

The National Association of Realtors said on Thursday that pending home sales improved for the second straight month in April. The organization’s Pending Home Sales Index, a forward-looking indicator based on contract signings, increased to 97.8 in April from 97.4 in March, but the index is still well below April 2013, when it was 107.7.

“Higher inventory levels are giving buyers more choices, and a slight decline in mortgage interest rates this spring is raising prospective home buyers’ confidence,” NAR chief economist Lawrence Yun noted in a statement. “An uptrend in closed sales is expected, although some months will encounter a modest setback.”

With sluggish activity in the first quarter, annual existing-home sales this year are expected to be modestly below 2013, when nearly 5.1 million units traded hands; but sales should be close to 5.3 million in 2015, the NAR predicts. The national median existing-home price is projected to grow between 5 and 6 percent this year, and in the range of 4 to 5 percent in 2015.

Initial unemployment claims drop

During the week ending May 24, initial unemployment claims were 300,000, a decrease of 27,000 from the previous week, the U.S. Department of Labor reported on Thursday. The four-week moving average was 311,500, a decrease of 11,250 from the previous week. That’s the lowest level for the four-week average since August 11, 2007.

Wall Street turned positive on Thursday, with the Dow Jones Industrial Average up 65.56 points, or 0.39 percent. The S&P 500 and the Nasdaq both gained 0.54 percent.