Disappointing First Quarter 2013 GDP Growth At 2.5 Percent Will Keep Fed On Hold:
Sometimes bad news is good news. Yes, everyone would prefer better economic numbers, but that’s not happening and the political economy risk that has threatened the U.S. economy for the last few years is taking root again. Sequestration and the increase in payroll taxes are contributing to weaker growth. On Friday, the gross domestic product data for the first quarter of 2013 was released and it was much less than most economists were expecting. U.S. growth was 2.5% for the quarter and that isn’t enough to expand the U.S. economy which has been characterized by high unemployment.
U.S. equities didn’t fall significantly on Friday and have held up for the last few days although the economic data has been weak. The sluggish economic growth data will probably keep the Fed from signaling any desire to interrupt the money supply or QE anytime soon. The Fed has no issues regarding inflation and could surprise markets with a tone that could be market constructive. We expect the unemployment numbers for April 2013 to show another month of weak growth at around 63,000 new jobs +- 25,000.
Equities are trading in a tight range that makes us neutral in the short-run until more volatility occurs based on the data in the week ahead as well as Fed-speak. Last week we mentioned durable goods could keep the Fed on hold and GDP numbers confirmed the U.S. economy is vulnerable.