1/30/2015
By Jennifer Coombs

The advanced US gross domestic product (GDP) reading for Q4-2014 has been released. Real GDP grew 2.6% in the quarter, significantly lower than analyst expectations for a 3.2% growth and quite a deceleration from the 5% growth in Q3-2014. The deceleration occurred due to the combination of the federal government decreasing its spending, higher imports, and lower nonresidential fixed investment spending. The only bright spot, so far, is that consumer expenditures are up. 

The Institute for Supply Management (ISM) – Chicago published their January reading of the region’s purchasing managers index (PMI). Growth in the Chicago region is quite strong and picking up steam, as the PMI index rose to 59.4 in January from a revised 58.8 in December. New orders and production growth both turned higher for the month, while businesses in the Chicago area picked up the pace of hiring to the highest level since November 2013. Price data shows the lowest level of pressure in 4.5 years. We note that this PMI read covers both manufacturing and non-manufacturing activity, and tends to post results, much more positive than the national data.

The University of Michigan’s Consumer Sentiment Index held onto the strong surge recorded at the beginning of the month, ending the month of January with a reading of 98.1, which was slightly lower than the mid-month reading of 98.2, but much stronger than the December reading of 93.6. The current conditions component expanded its gain from earlier in the month to a final reading of 109.3 which is higher than the 108.3 mid-month reading and the 104.8 recorded in December. Ultimately, this comparison shows a strong surge in consumer activity in January over December. Looking longer-term, the expectations component ends January with a reading of 91.0 which is slightly lower than the preliminary reading of 91.6, but much stronger than the 86.4 in December. Once again, sentiment may be stronger now, but until it translates into a pickup in spending the economic recovery will remain a pipedream.

Employee compensation costs held at a high rate in Q4-2014, increasing quarter-over-quarter by 0.6%, but slightly down from 0.7% in the prior two quarters. On a year-over-year basis, Q4 remained unchanged from the prior quarter at +2.2%. Pressure has been evenly split among components, with wages & salaries up 0.5% and benefits up 0.6%. Year-on-year, however, benefits are higher at +2.6%, which matches second-quarter last year as a recent high, versus +2.1% for wages & salaries.

Jennifer Coombs
Wall Street Strategies

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