–High Energy Prices Cut Growth; May Orders Suggest Moderation

By Joseph Plocek

WASHINGTON (MNI) – Two new economic reports show modest momentum in
the U.S. economy.

May durable goods orders seesawed up 1.9%, about as analysts
expected, continuing the down-up sideways pattern in place since last
December. This suggests factories will continue to advance output,
albeit at a modest pace.

May ex-transportation orders printed +0.6% and ex-defense
printed +1.9%. These also reflect rebounds from April drops.

All sectors printed higher orders in May, led by +3.2%
for electronics (after -5.2% in April). Orders for primary metals were
up 1.8%, machinery up 1.2%, and motor vehicles up 0.6%. Nondefense
aircraft orders gained 36.5%.

Nondefense capital goods shipments were up 1% but this came after
-1.5% in April. Shipments appear to be slowing for Q2, suggesting weak
business spending.

May inventories printed +1.2%, and shipments +0.3%.

In a separate report, Q1 real GDP growth was finalized at a slow
+1.9% as new data showed net exports and inventories adding more, but
nonresidential construction and State and Local government spending
adding less.

This composition does not portend any fast quickening in the pace
of growth. Real final sales at +0.6% is the slowest since Q3:2009.

As Q2 draws to a close, higher gasoline prices and slowing job
gains seem to suggest the consumer will continue to struggle. Auto sales
are higher, but other sales mixed, and manufacturing orders are
seesawing rather than in an uptrend.

The Q1 revisions showed state and local spending at -4.2%, its
slowest pace since -7.4% in Q2:1981, the depths of a prior steep
recession. The revisions also show core PCE prices finalized at +1.6%.
Other price indices are substantially higher due to the effects of high
energy prices.

Corporate profits from current production posted +$48.7 billion,
most of it from domestic nonfinancial corporations. More detailed
information than previously available showed manufacturing moving to a
profit from a Q4 loss, led by a return to profitability at computer,
electronic, and motor vehicle firms.

The Commerce Department said annual revisions to GDP data will be
released July 29 along with the first estimate of Q2 growth.

GDP Components: Q3 Q4 final Q1 Prelim Q1 Rev Q1 Final
Real growth +2.6% +3.1% +1.8% +1.8% +1.9%
Real final sales +0.9 +6.7 +0.8 +0.6 +0.6
PCE +2.4 +4.0 +2.7 +2.2 +2.2
Nonres fixed invest +10.0 +7.7 +1.8 +3.4 +2.0
Res fixed invest -27.3 +3.3 -4.1 -3.3 -2.0
Net Exports Contrib cut 1.70 add 3.27 cut 0.08 cut 0.06 add 0.14
Inventory Contrib add 1.61 cut 3.42 add 0.93 add 1.19 add 1.31

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