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Gross Domestic Product gained solid momentum in the 2nd half of 2013 running at an annualized 3.4% rate. The National Association of Business Economics (NABE) consensus forecast for 2014 is 2.8% . That compares favorably to the full year 1.9% achieved in 2013.
GDP in the first quarter rose at an annual rate of just 0.1%. The Council of Economic Advisers considers this weak output to be largely caused by the unusually severe winter weather. Their data shows that this was the 3rd most unusually cold season in the last 60 years as measured by deviation from normal temperatures. They also rate it as the highest number of snow storms. Their March indicators showed a rebound in growth suggesting the weather related impact ending toward the end of the quarter.
The impact of the Affordable Care Act will increase the unpredictability in forecasting GDP for 2014. Health care consumption has increased sharply so far in 2014, which increases GDP; however, it is impossible to predict how that will impact other areas of consumer spending. The Personal Consumption Expenditures (PCE) component accounts for approximately 70% of GDP. Consequently, the impact this new legislation has on consumer discretionary income will be important. Real PCE measured 3.0% in March with durable goods at 0.8%, non-durable goods at 0.2%, and services at 4.4%.
Consumer sentiment, as measured by the Reuter’s/University of Michigan Consumer Sentiment Index, continues to trend up from the 2009 recession lows, but it remains well below prerecession levels. The current report for May shows a 81.8 reading compared to 110 in 2007.
Leading Economic Indicators (LEI) rose 0.8% in March and 0.4% in April to their highest level since 2007. These strong readings suggest that the effects of the winter weather were temporary and there is further growth ahead. LEI components showing strength included ISM New Orders Index at 55.1, building permits at 1.08 million, consumer expectations for business conditions at .1 standard deviation above the mean, initial jobless claims down to 320,400, and the S&P 1,883 at the end of April.