MAY 2010

GDP and Productivity Revised Downward

Gross domestic product increased at an annual rate of 3.0% in the first quarter of 2010 compared to initial estimates of 3.2%.¹  The positive rate was due primarily to contributions from personal consumption expenditures, private inventory investment, exports, and nonresidential fixed investment.  The 0.2% downward revision was based on an increase to imports combined with a decrease to personal consumption expenditures, slightly offset by an upward revision to exports.  Personal income increased 0.4% in April, and personal saving increased to 3.6% of disposable income compared to 3.1% in March.²  Consumer confidence increased slightly in May as the Index of Consumer Sentiment rose to 73.6 from 72.2.³  Consumers were still anticipating a tough economic environment over the next several years and believed that their personal finance prospects were weak.  Productivity improved at a 2.8% annual rate for the first quarter of 2010 compared to initial estimates of 3.6%.  Unit labor costs declined 1.3% for the quarter, as productivity outpaced hourly compensation gains, which were approximately 1.5% for the period.⁴

Unemployment Decline Skewed by Census Hires

Unemployment, as measured by the U-3 rate, declined slightly to 9.7% in May, from 9.9% in April, and the U-6 underutilization rate fell from 17.1% to 16.6% in May.  The U-6 unemployment rate included the 9.7% figure plus those workers who are “marginally attached”, meaning they want a job and have looked for a job in the past 12 months, and workers who are part-time  for economic reasons, but only a fourth of them say they could not find a   full-time job.  The U-3 unemployment rate is the official unemployment rate and is the total amount of unemployed workers as a percentage of the labor force.  While this decrease was positive, it was largely skewed by the recent hiring of 411,000 temporary Census employees.  Employment in private sector industries was largely unchanged and construction employment declined for the month.⁵

Housing Benefitted from Stimulus

The housing market continued to show signs of improvement amid the expiring tax credit in April.  Existing home sales increased 7.6% for the month with the median price of $173,100, up 4% year-over-year.⁶  While home sales improved, seasonal adjustments of new house listings slightly increased the total housing inventory level to approximately 8.4 months of supply in April compared to an 8.1-month supply in March.⁷  Pending home sales hit the highest level since October 2009, as this forward-looking indicator, rose 6% in April.  While this data is based on contracts and not closed deals, the pick-up in activity was most likely related to the recent stimulus program.  According to Lawrence Yun, chief economist for the National Association of Realtors, “the home buyer tax credit brought close to 1 million additional buyers into the market, which is now helping the trade-up market and has significantly improved the inventory situation.”⁸  In the coming months, sustainable job creation will be key to continued momentum in the housing market.

¹ Bureau of Economic Analysis.  “Gross Domestic Product:  First Quarter 2010 (Second Estimate).  Corporate Profits:  First Quarter 2010 (Preliminary).”  Information available from http://www.bea.gov.  27 May 2010. 

² Bureau of Economic Analysis.  “Personal Income and Outlays:  April 2010.”  Information available from http://www.bea.gov.  28 May 2010.

³ Curtin, Richard.  “Consumer Confidence Unchanged.”  Information available from http://www.reuters.com/universitymichigan.  28 May 2010.

⁴ Bureau of Labor Statistics.  “Productivity and Costs, First Quarter 2010, Revised.”  Information available from http://www.bls.gov.  3 June 2010.

⁵ Bureau of Labor Statistics.  “The Employment Situation – May 2010.”  Information available from http://www.bls.gov.  4 June 2010.

^6-7 “Existing-Home Sales Continue to Improve in April.”  Information available from http://www.realtor.org.  24 May 2010.

⁸ “Pending Home Sales Surge Continuing.”  Information available from http://www.realtor.org.  2 June 2010.