Instant View: U.S. second quarter GDP growth slows to 2.1% but tops estimates
By Reuters Staff
(Reuters) – U.S. economic growth slowed less than expected in the second quarter as a surge in consumer spending blunted some of the drag from declining exports and a smaller inventory build, which could further allay concerns about the economy’s health.
** Consumer spending up 4.3% vs 1.1% in Q1
** Business investment down 0.6% vs up 4.4% in Q1
** Spending on structures down 10.4% vs up 4.0% in Q1
** Housing investment down 1.5% vs down 1.0% in Q1
** Government outlays up 5.0% vs up 2.9% in Q1
** Exports down 5.2% vs up 4.1% in Q1
** Imports up 0.1% vs down 1.5% in Q1
** STOCKS: S&P 500 e-mini futures ESv1 briefly pare gains but still point to gains at the Wall Street open [.N]
** BONDS: 2- US2YT=RR and 10-year US10YT=RR Treasury yields tick higher [US/]
** FOREX: The dollar index .DXY edges up, gaining ground against both euro EUR= and yen JPY=
ART HOGAN, CHIEF MARKET STRATEGIST, NATIONAL SECURITIES, NEW YORK:
“This is slightly better than expected but certainly not enough to change the path of the Fed meeting by the end of this month.
“This is just what the market needed, not so soft that the economy is slowing down precipitously and not so strong that the Fed is going to reverse course. It shows that the economy is slowing but not nearly enough to raise any red flags.
“This is still good news because a stronger economy translates to stronger earnings and since we are already in the second quarter, we can now see that earnings reports have been getting better. We expected bad earnings and bad GDP numbers but an upside on both is something markets are going to embrace today.”
ERIK NELSON, CURRENCY STRATEGIST, WELLS FARGO SECURITIES, NEW YORK:
“The details of the GDP report were pretty solid across the board. In terms of impact on FX — one of the things we have emphasized before is that growth has become an important driver of FX rates. You continue to see this theme that the U.S.
is growing well, better than most G7 economies, consistent with dollar strength that we’re seeing on the back of this. It’s not substantial though. I don’t think it changes all that much for the Fed next week.
We still expect a 25 basis-point cut at the meeting.”
AARON ANDERSON, SENIOR VICE PRESIDENT OF RESEARCH, FISHER INVESTMENTS, WOODSIDE, CALIFORNIA:
“I would call this a very encouraging report, at least it reinforces the idea the economy is on a more stable footing than people have been worrying about recently.
Obviously this is a little bit of economic deceleration from last quarter, and that should be the story of this whole year. The economy does slow down a little bit, but not to such a degree that it puts us at risk of a near-term recession.
Otherwise it’s pretty stable with low inflation and that’s not a bad thing.”
“As I go down through the core components it looks pretty encouraging. You had decent growth in personal consumption. You had some weakness in business spending.
It looks this is the first negative number we’ve had in gross private domestic investment. But most of that’s tied to inventory, things structures.
Most of the other components look positive to me particularly if you’re looking at intellectual property, those kinds of things.”
STEPHEN STANLEY, CHIEF ECONOMIST, AMHERST PIERPONT SECURITIES, STAMFORD, CONNECTICUT:
“Given we have benchmark revisions, the numbers are pretty close to expectations. The basic story is that in the first half, the economy grew at 2.5%, which is comfortably above trend.
On the other hand, the core PCE came in lower-than-expected, which continues the theme whether low inflation is transitory and is running below target.
The data don’t really show the degree of slowdown that people are worried about.
“The Fed is obviously easing due to downside risks. I’ll be surprised if the Fed will signal next week they are entering into an easing cycle. They will take it move by move. They are going to bolster the economy to counter the downside risks from trade. The bar for easing is lower because they are not concerned that inflation is getting too high.”
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US economy slows to 2.1% annual GDP growth in second quarter – as it happened
Pangloss or Cassandra: is the world economy doing just fine or about to seriously hit the buffers?
The views of economists are varied, and the spread of opinion on what central banks should do about it is even broader. But with the European Central Bank yesterday, hawks and doves a have something to play with after today’s US GDP release, which showed that the US economy slowed down, but slower than expected.
The American consumer delivered the economy from further deceleration, but business investment fell.
Gregory Daco (@GregDaco)
US real #GDP +2.1% in Q2:
– #consumer spending surged +4.3% w/ services +2.5%
– #business investment -0.6% on weak equip & large struct drop – resid invest -2.0% (6th consecutive Q drop!)
– net #trade -0.7ppt as exports fell sharply
– inventories drag -0.9ppt
– gov spend +5% pic..com/LIRUdlNRmL
July 26, 2019
The mixed picture should leave the way open for the Federal Reserve to go ahead with rate cuts next week, economists said.
James Knightley, chief international economist at ING, an investment bank, said:
We expect the Federal Reserve to pull the trigger on a precautionary 25 basis point rate cut next Wednesday with a further 25 basis point move ly in September.
The market continues to look for four rate cuts in total by the end of 2020, but we believe the catalyst for such action would have to be a significant ratcheting up in trade tensions.
US President Donald Trump said on Friday that he was presiding over “the greatest Economy in US history”, but ignored the GDP figures in favour of attacking usually friendly TV channel Fox News.
The moderate slowdown helped US stock market indices to gains in early trading in New York.
Alphabet and are among the big movers on US stock markets, after they posted better-than-expected earnings.
US Movers: Alphabet (GOOG, GOOGL) +8.7%, (TWTR) +7.2%, Starbucks (SBUX) +4.9%, Intel (INTC) +2.2%; Amazon (AMZN) -1.7%, Mohawk Industries (MHK) -17.5% (approx)
July 26, 2019
In the UK Vodafone’s decision to float its mobile masts division has seen shares rise by almost 10% – helping the broader FTSE 100 to a 0.65% gain as the trading day approaches its end.
And there’s still no Sports Direct announcement. What on earth could Mike Ashley be doing?
Thanks for joining us for today’s coverage of business, economics and the markets. I’ll be back bright and early on Monday as we build up to the Federal Reserve and the Bank of England later in the week. JJ
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US dollar hits two-month high ahead of GDP figures
12.56pm BST 12:56
With just over half an hour to go until US GDP data is released, Wall Street futures prices are pointing to gains on stock markets: the S&P 500 and Dow Jones industrial average are both set to rise by 0.3% and the Nasdaq is set for a 0.4% gain.
Amazon and Google owner Alphabet both posted mixed earnings results last night, but beat analyst forecasts in results published today.
Reuters reported: posted better-than-expected second-quarter revenue on Friday and an uptick in daily users who see advertisements on the site, driven by changes to show users more relevant content, sending its shares up by 5% in pre-market trading.
However, the company forecast third-quarter revenue below many Wall Street estimates and said revenue growth would lag the first two quarters, partly due to ending some older ad formats.
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