July 3, 2007—The GDP grew a paltry 0.7% in the 1st quarter as the weak housing market and soft trade hindered growth. New home sales fell 1.6% in May and are down 15.8% compared to a year ago. Personal income and consumption both increased in May, rising 0.4% and 0.5%, respectively. New orders for durable goods fell 2.8% and lastly, the Fed kept the funds rate steady at 5.25%.
 
Gross Domestic Product
The 'final' estimate by the BEA indicates that the GDP grew an anemic 0.7% in the 1st quarter, a major deceleration from the 2.5% growth in the 4th quarter. A 15.7% drop in fixed residential investment, a reflection of the lackluster housing market, was a huge drag on GDP growth. Trade was weak in the 1st quarter, as imports rose 5.5% while exports inched up only 0.7%. Corporate profits set a new record in the 1st quarter, increasing an annualized $23.0 billion to $1.671 trillion. On a year-ago basis, the GDP has increased only 1.9%.

New Home Sales
New home sales fell 1.6% in May to 915,000 units (seasonally adjusted annual rate). Furthermore, sales on a year-ago basis are down 15.8%. The median sale price of a new home was $236,100 in May, up from $232,700 the previous month. Lastly, inventories increased 1.4% in May to 7.1 months of supply and compared to a year ago are up 14.5%. The housing market continues to struggle, and new home sales should remain weak going forward.

Personal Income
Personal income rose 0.4% in May, rebounding from the 0.2% decline in April. Concurrently, consumption increased 0.5%. On the inflation front, the top-line PCE deflator jumped 0.5% in May while the core PCE deflator, which excludes food and energy, inched up only 0.1%. On a year-ago basis, the PCE deflator is up 2.3% while the core PCE deflator has increased 1.9%. Lastly, the saving rate worsened, falling to -1.4%.   

Durable Goods
New orders for durable goods fell a larger-than-expected 2.8% in May following an upwardly revised 1.1% increase in April. New orders for core capital goods, which signify business investment in equipment and software, plunged 3.0%. Inventories and unfilled orders both increased for the month, rising 0.2% and 0.8%, respectively. Lastly, shipments of durable goods rose 0.4%.

Federal Open Market Committee Meeting
For the eighth straight meeting, the FOMC kept the funds rate at 5.25%, stating that the economy seems likely to continue to expand at a moderate pace going forward. Although "readings on core inflation have improved modestly in recent months," the committee is still concerned that inflation will fail to moderate as expected. Any policy adjustments in the future will depend on incoming information concerning both inflation and economic growth.