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May 7, 201501:32 PMOpen Mic

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Economic Update: Economic fundamentals remain positive despite soft first quarter

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U.S. economic data indicated the first quarter was soft, and although fundamentals for the economy remain positive, April data did not foreshadow a strong rebound in the economy.

U.S. Gross Domestic Product (GDP) grew just 0.2% in the first quarter. A couple of one-time factors — weather and the West Coast ports strike — slowed activity. The stronger U.S. dollar likely also reduced U.S. exports.

Investment spending fell, likely due to declines in oil and natural gas capital spending, which was driven by lower prices. Prices for oil have rebounded from the lows but inventories remain high, which may mean capital spending in the energy industry will remain a drag on the economy into the second quarter.

The positive factor in the report remained the solid consumer spending data. Low weekly jobless claims and solid, though not improving, consumer confidence data indicate the jobs market should return to its path of improvement. This may provide support for some return to trend growth in the second quarter.

We continue to expect the U.S. economy to grow at an average of 2.5% to 3% for 2015. The April employment report should provide an initial indication of normalization, with nonfarm payrolls growth expected to rebound back above 200,000 new jobs.

(Continued)

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