United States
While old news with us 2/3 of the way thru Q2, Q1 GDP was revised higher to growth of 1.2% from .7% and vs the estimate of up .9%. It thus provides us with a higher starting point to Q2 but those estimates for Q2 are now moving lower. Yesterday, trade and inventories led to a drop in estimates and today’s durable goods report will drag it down even further. So we have a higher than expected Q1 but now a lower than forecasted Q2. Q1 was revised up within personal spending due mostly to spending on services. Gross private investment was also revised up due to spending on structures and intellectual property. Equipment spending was revised lower and residential real estate was left unchanged. Trade also was little changed with the initial print. Government spending was less negative, also adding to the headline GDP gain while the inventory drag was even more pronounced. Taking out inventories and its influence saw real final sales revised up to 2.2% from 1.6% and is averaging 2.2% over the past 4 quarters. On a y/o/y basis, Q1 GDP was higher by 2% and is now averaging 1.75% over the past 4 quarters.
Core durable goods orders, defined as non defense capital goods ex aircraft, saw no change in April m/o/m vs the estimate of up .5% and March was revised down by 5 tenths to also no change and this comes after just a .1% rise in February. On a y/o/y basis, core orders are up just 1.6%. Also of note, shipments of core goods which gets directly plugged into the GDP report saw a .1% drop vs the forecast of up .5% and March was revised down by 3 tenths (which will then temper the revision to Q1 we just saw). Core shipments were flat y/o/y.
Within the report, orders for vehicles/parts rose .3% m/o/m but follows 3 months in a row of declines and is down 3.8% y/o/y. Machinery and metals fell m/o/m but are all up nicely y/o/y helped by the rise in commodity prices since last year. Electrical equipment fell 1.7% m/o/m and are up just .5% vs last year. Computer/electronics rose 1% but after a 2.3% drop in March and is higher by only 1% y/o/y.
Bottom line, capital spending growth of substance is still just not there which continues a multi year mediocre trend and is now under the spell of when does tax reform come our way, this year or next and what is the complexion and extent of it. Expect the Atlanta Fed to take a big slice out of its Q2 GDP estimate today from the last print of 4.1%. Here is a chart of core durable goods orders in absolute dollars and you can see we are at the same level seen in early 2006:
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.