BEA: Economy Grew 2% in First Quarter

The economy continued to provide pleasant surprises Thursday, including an unusually large upward revision in the nation’s output for the first quarter.

The U.S. Bureau of Economic Analysis released its third and final estimate for real Gross Domestic Product on Thursday, saying it rose an annualized 2.0% from the fourth quarter to the first quarter, following a 2.6% gain in the fourth quarter. Its first estimate released April 27 showed a 1.1% first-quarter gain, which it revised to 1.3% on May 25.

Usually third estimates show little or no change.

“The updated estimates primarily reflected upward revisions to exports and consumer spending that were partly offset by downward revisions to non-residential fixed investment and federal government spending,” the BEA news release said.

The Mortgage Bankers Association had revised its estimate for first-quarter growth from 1.1% to 1.3% in its monthly forecast dated June 21. MBA stuck with its forecast for a recession this year, but pushed back the start to the second half and said it was likely to be smaller than previously expected.

CUNA in its May forecast backed off its recession prediction in favor of a slowing economy or “soft landing.”

In a late May CUNA podcast, CUNA Chief Economist Mike Schenk said the economy is “essentially on a razor” as the Fed looks for signs that inflation is dropping to its 2% target.

While CUNA economists are forecasting rising delinquencies and net charge-offs. Those measures of asset quality were near modern-day lows before rising modestly over the past six months.

“Our baseline forecast has those numbers settling in at rates below the long-run average, not only at the end of this year, but the end of next year as well,” Schenk said. “Things will look more normal over this forecast horizon than they have in the last couple years.”

In other economic news Thursday:

• The BEA report also shed a ray of sunshine for the Fed, which stresses that it watches the personal consumption expenditures (PCE) price index that excludes food and energy prices. That gauge showed prices rising 4.9% in the first quarter, down from its second estimate of 5.0% and back to its original estimate. The bigger cloud is that while PCE excluding food and energy is down from its peak of 5.6% in 2022’s first quarter, it’s up from 4.4% in the fourth quarter.
• The Labor Department on Thursday reported that seasonally adjusted jobless claims were 239,000 for the week ending June 24, down by 26,000 from the previous week. The 4-week moving average was 257,500, an increase of 1,500 from the previous week’s revised average. This is the highest level for this average since Nov. 13, 2021 when it was 260,000.
• The National Association of Realtors reported pending home sales shrunk 2.7% from April to May. “Despite sluggish pending contract signings, the housing market is resilient with approximately three offers for each listing,” NAR Chief Economist Lawrence Yun said. “The lack of housing inventory continues to prevent housing demand from being fully realized.”
• MBA reported homebuyer affordability declined further in May, with the national median payment on applications from home buyers increasing 2.5% to $2,165 from $2,112 in April.

Edward Seiler, executive director of MBA’s Research Institute for Housing America said prospective buyers continue to grapple with high interest rates and low housing inventory. MBA has cited growth in new home sales as one source of relief.

“While supply remains low, we do expect that inventory will pick up in the near term, which will provide more opportunities for borrowers to buy a home,” Seiler said.