Economy on Very Solid Ground

What a difference a month makes.

Last month many economists had pushed down their estimates for first quarter economic growth to near zero. The Atlanta Fed's "GDP Now" model was projecting real GDP growth at a 0.2% annual rate in Q1, which would have been the slowest growth since the weather-related negative reading in the first quarter of 2014. But this time it was seen as a new trend leading us toward a recession.

Now, just four weeks later, the economy hasn't cooperated with the pessimists. Just think about all the positive news we've had lately.

Last Friday showed payrolls rose 196,000 in March after a temporary lull in February. And while average hourly earnings rose a smaller than expected 0.1% in March, they're up 3.2% in the past year, an acceleration from the 2.8% gain in the year ending in March 2018.

At least one analyst noted that the average change in payrolls in the last three months (180,000 per month) is the slowest since late 2017. This is 100% true...and 100% irrelevant. The three-month average bounces around all the time; since 2014 that average has been as high as 291,000 and as low as 136,000. What these analysts are doing is exploiting the fact that payrolls grew only 33,000 in February, pulling down the short-term average.

Meanwhile, new claims for unemployment insurance fell to 202,000 last week, the lowest reading since 1969. If you expect a recession to start soon, this data doesn't support it. Claims usually start to creep up before a recession starts; no sign of that now.

Another piece of good news was that auto sales (cars and light trucks, both included) increased 5.3% in March to a 17.5 million annual rate. As a result, our early estimate for retail sales for March is an increase of 1.0%.