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Of the eleven indicators that came out a few days ago, only one worsened: home prices continued to decline. Outside of that, it appears that a smoother ride is shaping up for manufacturers and the rest of the economy going forward. And looking in the rear view mirror, the road just traveled turned out to be a little less bumpy than we initially thought: the Commerce Department's revised estimate of first quarter GDP growth, which also came out a few days ago, showed that economic growth fell at an annual rate of 5.7 percent, slightly milder than the advanced report of a 6.1 percent decline.
While signs of improving economic conditions have only started to materialize within the past several months, the breadth of the improving indicators is noteworthy (see Latest Economic Reports section below). Last week's improvements in the housing market, consumer confidence, initial unemployment claims and new orders for durable goods all point to a milder decline in GDP shaping up in the second quarter.
Also last week, three of the Federal Reserve Regional Banks' (Dallas, Richmond, Kansas City) May manufacturing reports showed that conditions within manufacturing continue to improve (see Chart 1). As the chart shows, the trough in the various regional manufacturing surveys was reached between November and March. Since then, the state of manufacturing has improved everywhere. In the Fifth District (Richmond Fed), there was an actual increase in manufacturing activity in May. While most of manufacturing continues to decline, conditions are clearly better than they were three to six months ago.
GDP (Q1 PRELIM)
There was a slight upward revision to GDP in the first quarter of 2009. Based on the preliminary report, real GDP fell at an annualized rate of 5.7 percent in the first quarter. This is modestly better than last month's advanced report of a 6.1 percent decline. The upward revision was due to improvements to exports and inventories that were partly offset by a downward revision to consumer spending on nondurable goods. In addition, corporate profits rose for the first time in seven quarters.
CHICAGO FED NATIONAL ACTIVITY INDEX (APRIL)
The Chicago Fed's national activity index rose to –2.06 in April from a downwardly revised –3.36 in March. The index has reached its highest level since October. April's improvement is consistent with the Conference Board's leading economic indicator, which suggests the pace of economic decline is moderating.
MARCHING ORDERS
Orders for primary and fabricated metals, machinery, and electrical equipment were up over the month of April. Motor vehicle orders and shipments rose for the first time in six months. In fact, orders in just about every other category besides computers rose.
DURABLE ORDERS (APRIL)
New orders for manufactured durable goods bounced back in April, rising 1.9 percent, the second rise in the past three months. Orders for primary and fabricated metals, machinery, and electrical equipment were up over the month. Computer orders fell, as did civilian aircraft orders. Motor vehicle orders and shipments rose for the first time in six months. Though capital goods orders fell in April, it is encouraging that orders in just about every other category besides computers rose.
RICHMOND FED MANUFACTURING SURVEY (MAY)
Manufacturing activity in the Federal Reserve's Fifth District (covering MD, WV, VA, NC and SC) increased for the first time since March 2008. The composite index rose to 4 in May from –9 in April. The May report provides solid evidence that manufacturing has stabilized in the fifth district. The shipments and new orders indices are both in positive territory, indicating that production likely reached a trough in the first quarter. Of the major Federal Reserve regional reports, the Fifth District's May survey of manufacturing is the first that showed actual growth in industrial output since last September.
DALLAS FED MANUFACTURING SURVEY (MAY)
Texas factory activity, while still weak, improved in May for a third consecutive month. After bottoming out at –61 in November of 2008, the current general business activity index rose to –21.5 in May from –31.6 in April. Meanwhile the future business activity index (forecasting activity six months forward) moved into positive territory (10.3) for the first time since September 2007.
