REUTERS/Brendan McDermidTraders work on the floor of the New York Stock Exchange April 30, 2014.
We got our first estimate of Q1 GDP, a preview of this Friday’s jobs report, and an announcement about monetary policy from the Fed.
First, the scoreboard:
- Dow: 16,580.8 (+45.4, +0.2%)
- S&P 500: 1,883.9 (+5.6, +0.2%)
- Nasdaq: 4,114.5, (+11.0, +0.2%)
And now the top stories:
- Today’s modest, low-volatility rally ended with the Dow at a record-high close.
- Q1 GDP growth decelerated to just 0.1% from 2.6% in Q4. Exports plunged by 7.6%, residential investment fell 5.7%, and private nonresidential fixed investment — a measure of business spending — fell by 2.1%. “Overall, disappointing news on first-quarter GDP growth, but it was principally due to the weather,” said Capital Economics’ Paul Ashworth. “We anticipate that second-quarter GDP growth will rebound to 3.5%, and we don’t expect these figures to affect the pace of the Fed’s QE taper, particularly not when conditions in the labour market appear to be strengthening.”
- Personal consumption grew by 3.0%, which was better than the 2.0% expected. This contributed to 2 percentage points of growth in GDP. But this was largely due to a whopping 9.9% jump in health-care spending, which analysts attribute to the implementation of the Affordable Care Act. “If health-care spending had been unchanged, the headline GDP growth number would have been -1.0%,” said Pantheon Macroeconomics’ Ian Shepherdson.
- According to ADP, U.S. companies added 220,000 private payrolls in April, which was a bit higher than the 210,000 expected. Also, their estimate for March was revised up to 209,000 from 191,000. “The job market is gaining strength,” said Moody’s Analytics’ Mark Zandi. “After a tough winter employers are expanding payrolls across nearly all industries and company sizes. The recent pickup in job growth at mid-sized companies may signal better business confidence. Job market prospects are steadily improving.”
- While the ADP report was encouraging, some economists warn against relying on it too much. Here’s Pantheon Macro’s Shepherdson: “Since its October 2012 change in methodology, the ADP number has been little more than a lagging indicator of the official initial payroll estimate for the previous month. This reflects the ADP methodology, which incorporates both lagged official payroll data and the Philly Fed index of business conditions – not their familiar business survey – as well as data taken from the set of employers using ADP for payroll processing. The ADP number has run a bit higher than the official data in recent months, probably because its treatment of weather-affected employees differs from the BLS measure.”
- The Federal Open Market Committee (FOMC) ended its two-day meeting today. As expected, they kept their benchmark interest rate unchanged at 0% to 0.25% and tapered its quantitative easing program by $10 billion to $45 billion. “[G]rowth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions,” said the FOMC.
- “Describing the slowing as ‘sharp’ was likely a nod to the Q1 GDP report that came in below expectations,” said Barclays’ Michael Gapen. “Altogether, we continue to see the committee ending its asset purchase program in October and, should our inflation forecast prove accurate, move to raise the policy rate in mid-2015.”
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