GDP price index - Q/Q change - SAAR 2.7 % 2.8 % 0.4 % to 3.5 % 1.1 %
Real GDP - Q/Q change - SAAR 1.0 % 2.4 % 1.4 % to 3.0 % 1.9 %
The first estimate for second quarter GDP showed that the economy has dodged recession so far – although revisions show we came very close. Measured GDP inflation slowed sharply due to technical quirks in the overall price index. Second quarter real GDP posted a 1.9 percent annualized gain, following a revised 0.9 percent rise the prior quarter. The markets had expected a 2.4 percent boost for the second quarter. The higher second quarter growth was driven by exports, business spending on structures, and moderate consumer spending.
On the inflation front, the GDP price index rose an annualized 1.1 percent – down from the first quarter increase of 2.6 percent but the deceleration was a statistical quirk. The consensus had projected the second quarter increase to be 2.8 percent. The overall price index was moderated by the interaction of the import price index with other components. More realistically, the price index for domestic purchases accelerated sharply to an annualized 4.2 percent from 3.5 percent in the first quarter. Headline PCE inflation jumped to 4.2 percent from 3.6 percent while core PCE inflation eased to 2.1 percent from 2.3 percent in the first quarter.
Today’s GDP release included annual revisions going back through 2005. The last three years of growth were revised down slightly. Using annual averages, real GDP growth for 2007 was revised down to 2.0 percent from 2.2 percent; 2006, to 2.8 percent from 2.9 percent; and 2005, to 2.9 percent from 3.1 percent. On a fourth quarter over fourth quarter basis, real GDP growth for 2007 was revised down to 2.3 percent from 2.5 percent; 2006, to 2.4 percent from 2.6 percent; and 2005, to 2.7 percent from 2.9 percent.
The annual revisions also gave us a contraction in the final quarter of last year – the fourth quarter slipped an annualized 0.2 percent, compared to the prior estimate of plus 0.6 percent. The economy came very close to recession over the last quarter of 2007 and first quarter of this year.
Despite the moderate improvement in GDP, markets might be somewhat timid today as quite a few of traders may be sitting on the sidelines, waiting on tomorrow’s more current data in the employment report for July. The importance of more current data is seen in the fact that many economists have downgraded their forecasts for second half growth. Also, initial jobless claims jumped in this morning’s release. Overall, the GDP and claims reports underwhelmed the markets – pointing to slippage in equities and a dip in bond yields.
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Jobless Claims
New Claims - Level 406 K 398 K 375 K to 420 K 448 K
Congress's emergency benefit extension program drove initial jobless claims through the roof in the July 26 week, the effects of a program that the Labor Department suspects will fade by mid August. Initial claims surged 44,000 to 448,000 for the highest level since April. The four-week average rose 11,000 to 393,000. These results completely took forecasters by surprise.
The Labor Department, in comments to Market News International, warned that the program has caused a "structural" though temporary shift in the series. The Labor Department said many who had previously exhausted their unemployment benefits are now eligible for new claims. The Labor Department said it cannot quantify the degree of the effect of the program's 13-week emergency extension. Continuing claims also showed enormous pressure, up 185,000 to 3.282 million for their sharpest one-week gain in more than 10 years.
Given an expected reading in GDP at 8:30 a.m. ET, markets were responding to this report despite the fact that the jump is tied to a special factor. Treasury yields were down as was the dollar.
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NAPM-Chicago
Business Barometer Index - Level 49.6 49.0 48.0 to 50.1 50.8
The Chicago purchasers' report broke a string of five straight sub-50 readings, though just barely with a 50.8 level in July for a 1.2 percentage point gain on the month. New orders have been solid in this series and remain so, at 53.5 vs. 52.0 in June and 56.1 in May. Production has been mixed, swinging in wide moves centered at 50. July's reading for this component came in at 49.2 vs. 45.1 in June. Inventories were very strong in the month, at 54.9 for a nearly 5 point gain and the highest reading in more than a year. Given the long string of strength in new orders, the inventory rise suggests that purchasers are stocking up to meet future production needs. They aren't, however, hiring to meet those needs as the employment index, little changed at 45.9, extended to seven months its string of sub-50 readings -- not a good indication for tomorrow's employment report. A real oddity in the report is delivery time which at 60.8, up 2 points in the month, indicates increasing extensions, extensions not consistent with levels of production.
Prices paid is a big headline in the report, at 90.7 for the highest reading since a 90.9 level in March 1980. But sample size in this report is generally small, a fact that diminishes the impact of the reading. Also diminishing the impact is the fact that June's prices paid index in the ISM manufacturing report was 91.5, also its highest reading in a generation. The ISM's prices paid index on the non-manufacturing side, at 84.5 in June, was a record. Remember Chicago data come from both the manufacturing and non-manufacturing sides. In any case, businesses have so far been able to absorb high input costs through productivity improvements and, unfortunately, by selectively paring back their workforces.
The markets showed a tiny bit of immediate reaction to strength in the report's headline though stocks, the dollar and Treasury yields then quickly ebbed lower. The overall economic outlook is one of weakness or at best, as indicated by this report, flat conditions.
Real GDP - Q/Q change - SAAR 1.0 % 2.4 % 1.4 % to 3.0 % 1.9 %
The first estimate for second quarter GDP showed that the economy has dodged recession so far – although revisions show we came very close. Measured GDP inflation slowed sharply due to technical quirks in the overall price index. Second quarter real GDP posted a 1.9 percent annualized gain, following a revised 0.9 percent rise the prior quarter. The markets had expected a 2.4 percent boost for the second quarter. The higher second quarter growth was driven by exports, business spending on structures, and moderate consumer spending.
On the inflation front, the GDP price index rose an annualized 1.1 percent – down from the first quarter increase of 2.6 percent but the deceleration was a statistical quirk. The consensus had projected the second quarter increase to be 2.8 percent. The overall price index was moderated by the interaction of the import price index with other components. More realistically, the price index for domestic purchases accelerated sharply to an annualized 4.2 percent from 3.5 percent in the first quarter. Headline PCE inflation jumped to 4.2 percent from 3.6 percent while core PCE inflation eased to 2.1 percent from 2.3 percent in the first quarter.
Today’s GDP release included annual revisions going back through 2005. The last three years of growth were revised down slightly. Using annual averages, real GDP growth for 2007 was revised down to 2.0 percent from 2.2 percent; 2006, to 2.8 percent from 2.9 percent; and 2005, to 2.9 percent from 3.1 percent. On a fourth quarter over fourth quarter basis, real GDP growth for 2007 was revised down to 2.3 percent from 2.5 percent; 2006, to 2.4 percent from 2.6 percent; and 2005, to 2.7 percent from 2.9 percent.
The annual revisions also gave us a contraction in the final quarter of last year – the fourth quarter slipped an annualized 0.2 percent, compared to the prior estimate of plus 0.6 percent. The economy came very close to recession over the last quarter of 2007 and first quarter of this year.
Despite the moderate improvement in GDP, markets might be somewhat timid today as quite a few of traders may be sitting on the sidelines, waiting on tomorrow’s more current data in the employment report for July. The importance of more current data is seen in the fact that many economists have downgraded their forecasts for second half growth. Also, initial jobless claims jumped in this morning’s release. Overall, the GDP and claims reports underwhelmed the markets – pointing to slippage in equities and a dip in bond yields.
------------------------------------------------------------------
Jobless Claims
New Claims - Level 406 K 398 K 375 K to 420 K 448 K
Congress's emergency benefit extension program drove initial jobless claims through the roof in the July 26 week, the effects of a program that the Labor Department suspects will fade by mid August. Initial claims surged 44,000 to 448,000 for the highest level since April. The four-week average rose 11,000 to 393,000. These results completely took forecasters by surprise.
The Labor Department, in comments to Market News International, warned that the program has caused a "structural" though temporary shift in the series. The Labor Department said many who had previously exhausted their unemployment benefits are now eligible for new claims. The Labor Department said it cannot quantify the degree of the effect of the program's 13-week emergency extension. Continuing claims also showed enormous pressure, up 185,000 to 3.282 million for their sharpest one-week gain in more than 10 years.
Given an expected reading in GDP at 8:30 a.m. ET, markets were responding to this report despite the fact that the jump is tied to a special factor. Treasury yields were down as was the dollar.
------------------------------------------------------------------
NAPM-Chicago
Business Barometer Index - Level 49.6 49.0 48.0 to 50.1 50.8
The Chicago purchasers' report broke a string of five straight sub-50 readings, though just barely with a 50.8 level in July for a 1.2 percentage point gain on the month. New orders have been solid in this series and remain so, at 53.5 vs. 52.0 in June and 56.1 in May. Production has been mixed, swinging in wide moves centered at 50. July's reading for this component came in at 49.2 vs. 45.1 in June. Inventories were very strong in the month, at 54.9 for a nearly 5 point gain and the highest reading in more than a year. Given the long string of strength in new orders, the inventory rise suggests that purchasers are stocking up to meet future production needs. They aren't, however, hiring to meet those needs as the employment index, little changed at 45.9, extended to seven months its string of sub-50 readings -- not a good indication for tomorrow's employment report. A real oddity in the report is delivery time which at 60.8, up 2 points in the month, indicates increasing extensions, extensions not consistent with levels of production.
Prices paid is a big headline in the report, at 90.7 for the highest reading since a 90.9 level in March 1980. But sample size in this report is generally small, a fact that diminishes the impact of the reading. Also diminishing the impact is the fact that June's prices paid index in the ISM manufacturing report was 91.5, also its highest reading in a generation. The ISM's prices paid index on the non-manufacturing side, at 84.5 in June, was a record. Remember Chicago data come from both the manufacturing and non-manufacturing sides. In any case, businesses have so far been able to absorb high input costs through productivity improvements and, unfortunately, by selectively paring back their workforces.
The markets showed a tiny bit of immediate reaction to strength in the report's headline though stocks, the dollar and Treasury yields then quickly ebbed lower. The overall economic outlook is one of weakness or at best, as indicated by this report, flat conditions.
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