Covering the economic data dump

Wednesday brought several key insights into the state of the U.S. economy, which is likely to be outpaced by China much earlier than expected. While numbers are telling, it’s unclear what they’re saying.

Eric Morath and Ben Leubsdorf wrote in the Wall Street Journal that first quarter economic growth was much lower than expected:

The U.S. economy nearly stalled in the first quarter as weakness overseas hurt exports and frigid weather curtailed business investment.

Gross domestic product, the broadest measure of goods and services produced across the economy, grew at a seasonally adjusted annual rate of 0.1% in the first quarter, the Commerce Department said Wednesday. That matched the second-weakest quarterly reading of the nearly five-year-old economic recovery.

Economists surveyed by The Wall Street Journal had forecast growth at a 1.1% pace for the quarter.

“Not a great start to the year,” said Lindsey Piegza, chief economist at Sterne Agee.

The broad slowdown halted what had been improving economic momentum during much of 2013. The economy expanded at a 3.4% pace in the second half of last year. The first-quarter reading fell far below even the lackluster average annual gain of near 2% since the recession ended.

The Federal Reserve paired back bond buying as expected, sending the stock market to new highs. Reuters’ Howard Schneider and Michael Flaherty said the Fed was more upbeat than the last time they spoke about the economy:

The Federal Reserve on Wednesday looked past a dismal reading on first quarter U.S. growth and gave a mostly upbeat assessment of the economy’s prospects as it announced another cut in its massive bond-buying stimulus.

Recent information “indicates that growth in economic activity has picked up … after having slowed sharply during the winter in part because of adverse weather conditions,” the central bank said in a statement after a two-day policy meeting.

“Household spending appears to be rising more quickly,” it added, although it said business investment “edged down.”

The Fed said it would reduce its monthly bond purchases to $45 billion from $55 billion, a widely expected decision that keeps it on track to end the program as soon as October. The decision was unanimous.

Blaming the weather, Bloomberg reported in a story by Jeanna Smialek that business spending declined, which doesn’t bode well for a quick recovery:

The harsh winter sent a chill through the U.S. economy in the first quarter as slumps in business investment and home construction stalled growth.

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Consumer purchases, which account for about 70 percent of the economy, rose at a 3 percent pace, spurred by utility outlays and spending on health care tied to President Barack Obama’s Affordable Care Act. The gain exceeded the 2 percent median forecast in the Bloomberg survey and followed a 3.3 percent increase in the last three months of 2013.

The wintry weather held back purchases of goods, which climbed at a 0.4 percent pace — the least in almost two years.

Expenditures on services climbed at a 4.4 percent pace, the biggest gain since the second quarter of 2000. Health care jumped by $43.3 billion at an annualized rate to $1.85 trillion, boosted by the president’s signature law, according to Commerce estimates. The pickup contributed 1.1 percentage points to growth, the most since quarterly records began in 1947.

But on the positive side, ADP said hiring increased, according to a story by Samantha Sharf for Forbes:

Out Wednesday, ADP’s April National Employment Report shows private payrolls added 220,000 jobs last month, on the high end of economists’ expectations. ADP also revised its March reading up from 191,000 to 209,000 jobs added.

Mark Zandi, chief economist of Moody’s Analytics, which collaborates with the payroll company on the report, noted in a statement on the results, “The job market is gaining strength. After a tough winter employers are expanding payrolls across nearly all industries and company sizes. The recent pickup in job growth at mid-sized companies may signal better business confidence. Job market prospects are steadily improving.”  ADP — Automatic Data Processing – says that private companies added 245,000 and 191,000 jobs in November and December 2013 respectively. The results plummeted to 121,000 in January and 193,000 in February before picking up in March.

ADP’s CEO Carlos Rodriguez pointed out that 220,000 is “well above” the twelve-month average, adding, “Job growth appears to be trending up and hopefully this will continue.

Looks like everyone just threw their hands up and their money into the stock market. The Wall Street Journal said in a story by Dan Strumpf that investors had a clearer understanding of the economic direction:

The Dow Jones Industrial Average notched its first record close of the year Wednesday, the latest sign that investors are growing more comfortable with the outlook for economic growth.

Wednesday’s rise comes after the Federal Reserve said it planned to reduce its bond-buying program, as expected. The blue-chip index rose 45 points, or 0.3%, to 16580.84, besting its last record of 16576.66 reached on Dec. 31.

The Dow’s latest push into record territory comes as market benchmarks this year have found it difficult to extend 2013’s big gains. Last year the Dow surged 27%, notching 52 fresh records along the way. So far this year, it is up just 0.3%. The broader S&P 500 rose 30% last year but has eked out a gain of just 1.9% this year.

I guess we all going to just start ignoring the data and going with what sounds good? Maybe it’s best to not make investing decisions based on numbers that will fluctuate, but I’m still not convinced that the economy is recovering as quickly as it could.