MARKET TP Wasn’t That BadRENDS:Q1 GD

The U.S. Gross Domestic Product (GDP) contracted lower than expected in 1Q15. Strong manufacturing, construction, and housing markets raised the final revision to the GDP growth estimate for Q1.

The GDP contracted by -0.2% from the previous estimate of -0.7%, the Commerce Department said on Wednesday. This was in sharp contrast to an increase of 2.2% in 4Q14, but in line with market expectations.

The harsh winter weather kept consumers at home, a strong dollar spoiled the exports, and a West Coast dock strike disrupted supply chains in 1Q15. This led to a fall in in personal consumption expenditure, exports, non-residential fixed investment, and government spending, These were partially offset by an increase in private inventory investment, in federal government spending, and a deceleration in imports resulting in a larger fall in the initial GDP growth estimate for 1Q15.

The final upward revision to 1Q15 GDP growth reflects an increase in household purchases that exceeded market forecasts. Household consumption grew by 2.1% last quarter, up from an initial estimate of 1.8% and market projection of 1.9%, driven by higher spending on food and transportation.

Personal consumption increased 4.4% in the 4Q15. A stronger job market and an improving wage rate is boosting auto, food, and home sales. Lower oil prices continue to hinder business investments, particularly in the energy sector, while a strong dollar makes U.S. goods uncompetitive in foreign markets.

Despite the soft first quarter, household spending appears favorable, and consumer sentiment remains solid. In the FOMC meeting last week, the Federal Reserve was confident that the first-quarter weakness was transitory and expects the economy to rebound. This raises the prospects of an interest rates hike this year, although succeeding hikes should come gradually.

Meanwhile, crude oil inventories declined for the 8^th consecutive week on a drop in oil imports. Commercial crude oil stockpiles slid 4.9 mn barrels to 463 mn in the week ending June 19, the Energy Information Administration said on Wednesday.

However, the fall in oil inventories was higher than the market expectations of 2.1 mn barrels and a 2.7 mn barrels decrease from 467.9 in the previous week. Crude oil inventories are at record high levels despite the constant declines. The decline in oil inventories lead to a surge in the oil price to over $64/barrel. The EIA expects oil production to slow down through early 2016.

The recent softening in oil prices and an improvement in income levels have resulted in rising consumer spending. Real consumer spending edged up 2.1% in 1Q15, higher than market expectations of 1.9% and 1.8% in April.

Post tax income increased 5.3% in 1Q15, the Commerce Department said in a separate release on Wednesday. The gain in household income was the largest since the end of 2012.

A higher increase in income against spending led to better savings. The savings rate was up to 5.4% from 4.7% at the end of 2014.

Retail sales advanced 1.2% in May after a modest 0.2% rise in April, primarily driven by higher auto purchases. Higher sales at the clothing outlets and department stores also added to the increase in overall retail sales. Both existing and new home sales were higher than the expectations, led by an increasing demand from first time home buyers, signalling a better real estate market going forward.

Market Trends is provided by Fund&Grow – an organization dedicated to funding entrepreneurs and small business owners. Interested in $50,000 to $250,000 of business credit at zero or very low interest with no impact on your personal credit? Get funded now. You can also click here to sign up to get more market updates and cutting edge news about credit and funding for your business.