Vital Signs: A Second-Quarter HangoverJames Mehring
The government reported that the economy grew at an upwardly revised annual pace of 5.3% during the first three months this year. Now, economists are focusing on where the economy is headed for the rest of the year.
The mainstream view is that the economy is going through a second-quarter hangover after the stellar first period and will then cruise along at the long-term pace of growth of around 3% to 3.5%. Any indications that the economy is deviating from the consensus could have significant implications for both inflation and monetary policy.
After the mixed results of the April labor report, the markets will be looking for some clarity. A solid May employment report could spark extra concerns about higher wages, potential inflation pressures, and raise expectations that the Federal Reserve will hike rates yet again at the next monetary policy meeting on June 28-29. A soft report could cause some concerns about growth prospects, the impact of higher energy prices on businesses and consumers, and lead more analysts to assume a pause is in the pipeline. Another mixed report would only intensify the financial markets' anxiety.
Analysts will scan the Institute for Supply Management's factory activity index, along with factory orders, construction spending, vehicle sales, and consumer confidence numbers for confirmation that demand among consumers and businesses is holding up in the face of elevated gasoline, oil, and commodity prices.
The minutes from the Fed's May 10 monetary policy meeting should also garner a bit of attention. The post-meeting press release was written in a way to provide the central bank maximum flexibility in its monetary policymaking from here on out. The minutes will be scrutinized for any indications of bias for or against another rate hike.
Memorial Day will make for a short week. The financial markets and government offices will be closed on Monday, May 29. Here's the lineup.