Educational Economic Update – May 2017

Data for consumer spending — which accounts for more than two-thirds of U.S. economic activity — was included in the first-quarter Gross Domestic Product report that was released April 30. It showed consumer spending increasing at a 0.3 percent annual rate, which is the slowest pace since the fourth quarter of 2009. The economy grew at a 0.7 percent rate in the first quarter, which is its worst performance in three years.

The Personal Consumption Expenditures — or PCE — price index, excluding food and energy. slipped 0.1 percent, the first and largest drop since September 2001, after increasing 0.2 percent in February. In the 12 months through March, the core PCE price index increased 1.6 percent, but was the smallest gain since July 2016, after advancing 1.8 percent this past February.

In the market, April ended with strong monthly gains, though U.S. equities closed lower on Friday, April 28, when the Dow slipped about 40 points and the S&P 500 fell .02 percent. The NASDAQ composite hit a record high before closing slightly lower.

It’s important to note that the three major indexes posted a monthly advance for April of about 1 percent. The S&P and the Dow posted their fifth positive month in six, while the NASDAQ recorded its sixth straight monthly gain.

Most of those gains came the last week of April when stocks posted rapid rallies as corporate earnings season kept revealing strong performances from top global companies.

Speaking of earnings season—which are those months in a year when most quarterly corporate earnings are released to the public—this one has been strong so far, with Apple, Facebook, Tesla, and BP all reporting. More than 75 percent of companies were surpassing profit estimates and about 70 percent were beating sales forecasts at the end of April.

Experts say that the number of companies topping profit and sales estimates this first quarter was above the five-year average.

You may be wondering how quarterly corporate earnings are strong while our economy expanded in the first quarter of this year at its slowest pace since 2014.

Robust global growth is making up for the lack of domestic activity. Analysis shows that the more business a U.S. company does overseas, the better its results. About 46 percent of S&P 500 sales overall, come from foreign markets. S&P companies that earn more than half their revenue overseas are seeing earnings growth that is twice the rate of companies that do mostly domestic business.

In the coming month, we are expecting more key economic data to be released, including the U.S. jobs report. Additionally, the Federal Reserve’s policymaking committee will meet early May and it’s expected that it will hold rates steady. And, while lawmakers reached an agreement April 30 to keep the government funded until the end of September, the full House and Senate must still approve the bipartisan pact sometime in May.

That’s it for this month’s educational economic update.