June 5, 2007--The GDP grew an anemic 0.65% in the 1st quarter as the weak housing market and weak trade hindered growth. Corporate profits increased $20.3 billion to $1.669 trillion. The labor market created 157,000 net new jobs in May while the unemployment rate held steady at 4.5%. The ISM index remained strong in May by increasing 0.3 points to 55.0. Lastly, personal income fell 0.1% in April while consumption rose 0.5%.

 

Gross Domestic Product
The preliminary estimate by the BEA indicates that the GDP grew an anemic 0.65% in the 1st quarter, a major deceleration from the 2.5% growth in the 4th quarter. A 15.4% drop in fixed residential investment, a reflection of the lackluster housing market, was a huge drag on GDP growth. Trade was weak in the 1st quarter, as imports rose 5.7% and exports fell 0.6%. Corporate profits set a new record in the 1st quarter, increasing an annualized $20.3 billion to $1.669 trillion. On a year-ago basis, the GDP has increased only 1.9%.   

 

Employment Situation
The labor market created 157,000 net new jobs in May following the downward revision of 80,000 jobs produced in April. The strength in payroll growth came from the service-producing industry, which added 176,000 jobs. The goods-producing industry, on the other hand, shed 19,000 jobs. Average hourly earnings increased $0.06 to $17.30, a 0.3% up-tick. Lastly, the unemployment rate remained at 4.5% in May. 

 

ISM Index
The ISM index inched up 0.3 points to 55.0 in May and stayed firmly in expansionary territory (above 50). New orders and production both increased for the month while inventories remained unchanged. Prices paid decreased 2 points but remains elevated and raises concerns about price pressures going forward. On the whole, this report is further evidence that the manufacturing industry is regaining momentum.

 

Personal Income
Personal income fell 0.1% in April following an upwardly revised 0.8% gain in March. Concurrently, consumption rose 0.5%.  On the inflation front, the top-line PCE deflator increased 0.3% in April while the core PCE deflator, which excludes food and energy, increased a more moderate 0.1%. On a year-ago basis, the PCE deflator is up 2.2% while the core PCE has increased 2.0%. Lastly, the saving rate worsened in April, falling to -1.3%.