March Pending Home Sales rose 5.1% m/o/m, better than expectations of a gain of 1.5% but is still down 11.5% y/o/y which was boosted by the tax credit. The best gain was seen in the South where contract signings rose by 10.3%. The West and Midwest also saw gains while the Northeast region saw a drop of 3.2%. This data is seasonally adjusted but we are in the best season of the home buying business and we’ll see how many of the contract signings translate into closings because of the repeated issues of tight lending standards and appraisal issues. With respect to the overall economic data seen of late, there has been a moderation relative to expectations and likely explains why the 10 yr note yield is matching the lowest level in 6 weeks, notwithstanding the daily depreciation in the US$ and repeated highs in US stocks.

Initial Jobless Claims disappointed for a 3rd straight week totaling 429k, 34k higher than expected and up from 404k last week. It’s the highest since the end of Jan. The 4 week average is now back above 400k at 409k. Continuing claims, delayed by a week, fell by 68k and Extended Benefits, delayed by two weeks, fell by a net 76k. Bottom line, the trend over the past few weeks is clearly disappointing as signs were pointing to a more sustainable pick up in the labor market. It is likely though that with the growing concern with rising commodity prices as co’s do their best to maintain margins combined with uncertainty for those that rely on Japan, a short term reluctance to expand is occurring.

Q1 Real GDP rose 1.8% annualized, below expectations of 2% and Nominal GDP was up just 3.7% vs the forecast of 4.3%, thus a price deflator .4% below forecasts prevented Real Q1 GDP from coming in even less than estimated. While Personal Consumption rose a better than expected 2.7% (est 2.0%) and spending on equipment and software rose a solid 11.6%, construction, trade and government spending (led by defense and local gov’t) were a drag. Inventories added about 1% pt to GDP. Of noticeable weakness, Real Final Sales which take out inventory, rose just .8%, the weakest since Q3 ’09. Bottom line, some factors that negatively influenced Q1 GDP (such as weather) some believe will reverse over the next few quarters and that this slowdown will be reversed as the consensus for the next few Q’s are 3%+. A positive influence in the 2nd half of ’11 will be co’s taking advantage of the accelerated depreciation for R&D with a bump in cap ex which will reverse in ’12. With this said, overall GDP growth is only averaging 2.3% so far in this recovery.

Category: MacroNotes

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