KEY DATA: GDP: +1.7%; Consumption: +1.8%; Investment: +9%/ADP: 200,000
IN A NUTSHELL: "While the economy limps along, job gains seem to be holding up quite well."
WHAT IT MEANS: The first reading of the state of the economy during the spring was released today and it came in above consensus. Most people expected growth in the 1% range (I was at 2%) so this looks like a good number. Before we get to any analysis, though, it must be noted that the government revised the data back to 1929, adding new accounting methods, data sources and statistical adjustments. Thus, history as we knew it has changed a bit. For example, first quarter growth, which had been estimated at 1.8%, is now just 1.1% while the fourth quarter of 2012 was revised down to just 0.1% from 0.4%. In other words, the last three quarters we have had growth rates of 0.1%, 1.1% and 1.8%. That is a nice upward trend but no growth level could be considered decent let alone strong. In the spring, consumers held up their end by buying lots of goods but not much services. Since services are roughly 45% of the entire economy, that is a problem. Housing also added greatly to growth. Businesses invested heavily in everything, a sign that maybe conditions are better than is being indicated in this report. Growing inventories probably mean businesses are expecting stronger growth ahead. Exports accelerated but so did imports so the trade deficit widened, slowing growth. And, as usual, the federal government did all it could to slow growth by cutting spending again. In contrast, state and local government purchases rose, the first increase in four years. Inflation is largely non-existent with consumer prices flat.