So where is the U.S. economy headed? Gross domestic product rose at an anemic annualized rate of 0.2 percent in the first quarter after advancing 2.2 percent in last year’s fourth quarter, and there are as yet no signs of a strong rebound during the second quarter.
U.S. industrial production fell in April for the fifth month in a row as oil and gas drilling continued to decline, and Reuters reported Friday that consumer confidence, as measured by the University of Michigan’s Consumer Sentiment Index, tumbled this month, to 88.6, its lowest reading since October, from 95.9 in April.
There were slight declines in consumers' attitude toward purchases of motor vehicles and homes. Economists noted the weak relationship between consumer confidence and consumer spending, but saw May's decline as unfavorable. Many believe consumer spending will accelerate in the second quarter as households start drawing on savings from relatively cheap gas.
"All things considered, the decline in confidence means that the potential for a pickup in consumption growth over the next few months is probably smaller than we previously anticipated," Paul Ashworth, chief economist at Capital Economics in Toronto, told Reuters.
However, trade and inventory data that have been published since the first-quarter GDP report suggest the economy contracted during the quarter. Second-quarter growth estimates are hovering near 2.5 percent, well below 4.6 percent growth in the same period last year.
Responding to the drop in the University of Michigan index, Yardeni Research said Monday that several factors may be weighing on consumer spending and confidence — increased spending on health care, probably out of pocket as a consequence of Obamacare; aging baby boomers spending less than younger people on goods not related to medical care and services; young adults burdened with student loans and finding it hard to qualify to buy a home; and a rising percentage of single people in the U.S. population.
The next reading on consumer confidence will come on May 26, when the Conference Board releases its Consumer Confidence Index for May.
On Monday, the National Association of Home Builders’ sentiment index for May dropped to 54, from 56 in April. Readings greater than 50 mean that more respondents are reporting good market conditions. The median forecast in a Bloomberg survey called for an increase to 57.
“We had a string of poor economic data that may have weighed on sentiment,” Ryan Sweet, senior economist at Moody’s Analytics Inc. in West Chester Pa., who projected the index would drop, told Bloomberg. “The fundamental drivers of housing demand support a pickup in the second half. Builders’ collective psyche remains fairly solid.”
On the positive side, the number of Americans who filed new claims for unemployment benefits has unexpectedly fallen, according to last week’s report from the Labor Department. It was an indication that the job market is on solid ground despite the overall economy’s struggle to rebound from its first-quarter weakness.
Initial claims for state unemployment benefits slipped by 1,000, to a seasonally adjusted 264,000, for the week that ended May 9. That was very close to a 15-year low that was reached two weeks earlier.