March 19, 2024

U.S. Economy Grew at 1.7% Rate in 2nd Quarter, Faster Than Expected

The gross domestic product grew at an annual rate of 1.7 percent, hardly indicative of an economic boom, let alone enough to bring down elevated levels of unemployment soon. It is also the third quarter in a row in which growth failed to top 2 percent, the average since the recession ended in 2009.

Still, the increase was an acceleration from growth in the first quarter of 2013, which was revised downward to 1.1 percent from an earlier estimate of 1.8 percent by the Bureau of Economic Analysis.

“It was a reasonable performance,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “In the long run, it’s not enough, but I’ll take growth wherever I can get it.”

The economy’s trajectory is being closely watched by the Federal Reserve as it determines whether to ease its huge stimulus efforts. Fed policy makers will conclude a two-day meeting on Wednesday and issue their latest statement on the economy early Wednesday afternoon.

On Wall Street, stocks rose modestly as traders readied for the Fed announcement, watching closely for any change in the language of the statement that might indicate the central bank’s course.

Many economists had anticipated growth of below 1 percent in the second quarter, as automatic spending cuts imposed by Congress and higher taxes that went into effect this year began to bite.

Federal spending did decline by 1.5 percent in the second quarter, but the drop was not as severe as the falloff in government spending in earlier quarters. Exports rose 5.4 percent, reversing a decline in the first quarter.

Most experts predict growth will pick up in the second half of 2013 as the drag from the federal spending cuts and higher taxes begins to fade.

“On balance it was a positive report showing a healthier economy than previously believed,” said Michelle Meyer, senior United States economist at Bank of America Merrill Lynch. “But growth has slowed in the past few quarters, reflecting fiscal tightening in Washington.”

The chairman of the Federal Reserve, Ben S. Bernanke, has hinted the Fed will soon begin winding down part of its extensive bond purchases aimed at stimulating the economy, but the timing is uncertain.

On Wall Street, analysts and traders are speculating that the Fed could start tapering as early as September if the economy enjoys healthier growth and the job situation improves, or it could be delayed to December or beyond on evidence of weakness.

While the Federal Reserve is not expected to announce a change in policy later in the day Wednesday, the economic data in the second quarter paints a more vigorous picture than anticipated and may increase the odds that the Fed will taper sooner rather than later.

Indeed, there were pockets of strength in Wednesday’s data from the Bureau of Economic Analysis. For example, residential fixed investment increased by 13.4 percent, a sign the housing sector continues to recover. Personal consumption rose 1.8 percent, as consumers showed some resiliency, especially given the increase in payroll taxes at the beginning of 2013.

The reason government spending stabilized last quarter, rather than falling sharply, was that military spending flattened out, said Steve Blitz, an economist with ITG.

After falling 21.6 percent in the final quarter of 2012, and another 11.2 percent in the first quarter of 2013, military spending last quarter barely budged, sinking just 0.5 percent. One factor that makes Mr. Blitz more optimistic about growth in 2014 “is the presumption that most of the military wind-down will have been completed.”

Higher inventories, always a volatile component of economic reports, added 0.41 percentage point to overall growth. But analysts cautioned that inventory estimates were often adjusted as more data came in, raising the possibility that second-quarter growth could be revised downward in the future.

More clues about the economy’s performance will come on Friday when the Labor Department reports on monthly job creation and the unemployment rate. Economists estimate the economy created 185,000 jobs in July, according to a Bloomberg survey, a bit below the 195,000 level in June, with the unemployment rate falling to 7.5 percent, from 7.6 percent.

The latest data come as the government performed its first comprehensive revision in how the economy is measured since July 2009.

As a result, the estimated growth in 2012 was actually healthier than originally thought. Last year’s annual rate of growth in economic output was revised upward to 2.8 percent, from 2.2 percent. The government also slightly adjusted the estimate of the severity of the recession from 2007-9, saying that the economy contracted at an annual rate of 2.9 percent, instead of 3.2 percent.

In a separate report on Wednesday, Automatic Data Processing reported that private sector employers added 200,000 jobs in July, a bit stronger than analysts had been expected. While the A.D.P. report doesn’t always align with the broader figures released by the Labor Department, the figure was interpreted as another positive sign.

ADP also increased its original estimate of the number of private sector jobs added in June to 198,000 from 188,000.

One puzzle for economists is why job creation has been healthier than economic growth would indicate. For example, the economy added an average of 183,000 jobs a month last year, a figure more consistent with 2.5 to 3 percent growth. But Maury Harris, chief United States economist at UBS, noted that the 2012 G.D.P. figures were revised upward, helping to explain the higher job creation numbers.

Article source: http://www.nytimes.com/2013/08/01/business/economy/us-economy-grew-by-1-7-in-2nd-quarter-faster-than-expected.html?partner=rss&emc=rss

New Jobless Claims Drop, Partly for Seasonal Reasons

The drop left unemployment benefit applications at the lowest level in 10 weeks, the Labor Department said on Thursday. Some of the decline may have been caused by seasonal factors.

Still, the broader trend has been favorable. The four-week average, which smooths out fluctuations, fell 5,250, to 351,000.

“We believe labor market conditions remain on a gradually improving trajectory,” said Laura Rosner, an economist at BNP Paribas.

Weekly applications data can be volatile in July. Automakers typically shut their factories in the first two weeks of the month to prepare for new models, which leads to a temporary spike in layoffs. But this year, much of the industry has skipped or shortened the shutdowns to keep up with stronger demand.

Applications are a proxy for layoffs. They have declined 5 percent since January. The drop has coincided with stronger job growth.

Employers added an average of 202,000 jobs a month through the first six months of the year, up from an average of 180,000 in the previous six months. In June, they added 195,000 jobs.

More than 4.5 million people received unemployment aid in the week ending June 29, the latest data available. That’s down just 1,900 from the previous week. The number of recipients has fallen 21 percent in the last year.

Separately, the Conference Board, a business research group, said on Thursday that its index of leading indicators remained unchanged at 95.3 in June, pointing to modest growth in the coming months. The flat reading followed increases of 0.2 percent in May and 0.8 percent in April.

The longer-term trend has been positive. The index increased 1.7 percent in the first six months of this year. That’s better than the 1.1 percent rise in the previous six months.

The trend “suggests that the economy should continue to experience at least modest growth over the next six to nine months,” Maninder Sibia, an economist at the Economic Advisory Service, said in a note to clients.

Article source: http://www.nytimes.com/2013/07/19/business/economy/new-jobless-claims-drop-partly-for-seasonal-reasons.html?partner=rss&emc=rss

Fed Is Weighing a Reaction to Stirrings of Recovery

The economy added an average of 187,000 jobs a month from September to February, slightly faster than the average monthly pace from 2004 to 2006, the best years of the last economic upswing. The government plans to release a preliminary estimate Friday morning of March job creation.

Some Fed officials have suggested in recent weeks that if economic growth continues on its present trajectory, the central bank should begin to roll back its economic stimulus campaign by the middle of the year, ahead of expectations.

But the Fed’s chairman, Ben S. Bernanke, and his allies remain wary that another surprising spring will be followed by another disappointing summer. Janet L. Yellen, the Fed’s vice chairwoman, who is viewed as a potential successor to Mr. Bernanke, reflected that caution in a speech on Thursday.

“I am encouraged by recent signs that the economy is improving and healing from the trauma of the crisis, and I expect that, at some point, the F.O.M.C. will return to a more normal approach to monetary policy,” she said, referring to the Federal Open Market Committee, which sets policy for the central bank.

For now, she said, the Fed needs to remain focused on reducing unemployment.

Ms. Yellen also commented obliquely on her own future. Asked whether the economics profession, and central banks, needed more women in positions of power, she responded that such a need was “something we’re going to see increase over time, and it’s time for that to happen.”

The Fed announced last year that it intended to hold short-term interest rates near zero so long as the unemployment rate remained above 6.5 percent. It also said that it would buy $85 billion a month in Treasury and mortgage-backed securities to accelerate the decline. By expanding its asset holdings, the Fed continuously increases the scale of its effort to stimulate the economy.

Stronger data has raised hopes that the economy is once again growing fast enough to reduce the unemployment rate, which stood at 7.7 percent in February, little changed from 7.8 percent in September. But more than 20 million Americans are unable to find full-time jobs and it is not yet clear that the recent uptick in the economy is sustainable. The yield on the 10-year Treasury note fell to 1.77 percent on Thursday, indicating that some investors are pessimistic about the economy’s prospects.

In recent months, weekly claims for unemployment benefits have declined. But the Labor Department reported on Thursday that claims spiked in the latest week to the highest level in four months, although it cautioned that the estimate was unusually imprecise because the week included Easter.

“House prices are going up more than I would have expected six months ago,” Ms. Yellen said. “I think it’s making people feel a whole lot better.” She added: “I don’t have any doubt that our policies are contributing to the lowest interest rates, whether it’s borrowing for a car or borrowing for a mortgage. I believe that that is not only caused by our policy, but our policy is contributing.”

John C. Williams, the president of the Federal Reserve Bank of San Francisco, said on Wednesday in Los Angeles that he might support a reduction in the volume of the Fed’s asset purchases by summer and a suspension of the program before the end of the year.

“I’m hopeful that the economy has finally shifted into higher gear,” said Mr. Williams, who supported the purchases last year.

Esther L. George, president of the Federal Reserve Bank of Kansas City, reiterated on Thursday her view that the Fed should scale back immediately. Ms. George cast the sole dissenting vote at the last two meetings of the Fed’s policy-making committee. She told an audience in El Reno, Okla., on Thursday that she was more concerned than her colleagues that the Fed’s efforts to suppress borrowing costs could result in financial instability and faster inflation.

Ms. Yellen and other officials, however, seem inclined to postpone any decisions. The pace of economic growth has remained weak relative to the pace of job growth. The most recent round of federal spending cuts has only just begun to show results. And Fed officials have overestimated the strength of the recovery repeatedly in recent years, only to find the economy needed still more help. Caution may now dictate doing more rather than less.

Article source: http://www.nytimes.com/2013/04/05/business/economy/fed-weighs-a-reaction-to-stirrings-of-recovery.html?partner=rss&emc=rss