GDP for the first quarter was initially reported at 1.1% growth, which was below consensus estimates of 1.9%. The internals were much stronger with growth of 3.4% when excluding inventories. A side measure of consumer spending is real final sales to private domestic purchasers. This metric was up 2.9% and recorded its highest reading in eight quarters.
Real disposable personal income was up 8% as income gains persist and inflation falls back. This is supportive of the stronger forward consumer spending versus the consensus recession outlook. ADP reported private payroll growth of 296,000, which was almost double the consensus estimate and is a rather remarkably strong number.
ISM Manufacturing came in at 47.1 and beat consensus. New orders were weak at 45.7 but up sequentially. Prices paid surprised on the high side and got the stagflation narrative into the headlines. ISM Services was also up sequentially at 51.9. New orders surged from 52.2 to 56.1. The ISM Services new orders remain way above where they should be tracking with the Leading Economic Index in such negative territory.
There are signs that maybe the economic weakness has bottomed, but this may not necessarily be robust for stocks as inflation will face difficult headwinds in the coming months. We could see growth and inflation surprise to the high side and get the Fed back in the hiking camp. But all bets are off if something breaks in the financial system, which is in play with the action in bank stocks.
The pullback was influenced by the portion of the report that reflects on consumers’ six-month outlook. Expectations of a tighter supply of credit and a more pessimistic outlook for employment and business conditions drove the report lower.
Consumers are more optimistic about current conditions as respondents surveyed felt that jobs remain plentiful.