By Maulik Mody – Bondsquawk.com
September 30, 2010
The U.S. economy grew at an annual pace of 1.7% during the second quarter of the month, barely surpassing economists’ expectations of 1.6%. The revised growth of GDP in the second quarter still remains low, furthering concerns about a slowdown. The economy grew at a rate of 3.7% in the first quarter of the year, but as a double digit unemployment rate takes a toll on consumer spending, the economy is expected to grow slowly for the rest of the year.
The revision was a result of mixed revisions of its constituents. While consumer spending was estimated to grow at 2.2% versus 2.0%, government spending was revised lower to 3.9% from 4.3%. Commercial real estate was revised lower to -0.5% from 0.4%, and overall final demand was revised down 10 bps to 0.9%. The core PCE price index was revised down to 1.0% from an earlier reported 1.1%. The index for the first quarter was 1.2%. The GDP Price index remained unchanged at 1.9%. Corporate profits for Q2 slowed substantially to 3.0% from 10.5% leaving annual growth still elevated at 37.0% owing to base effects. On balance the data do not change the view of the US economy as having slowed notably as the inventory cycle fades.
On a positive note, initial jobless claims for the week ended Sep 25 fell to 453K from an upwardly revised 469K the prior week. The fall in claims was 7000 more than expected, pulling the 4-week average down to 458K from 464K. The Labor Department reported earlier this month that the private sector added 67K jobs in August. The growth remains positive but moderate and although the private sector is expected to add jobs, it will be insufficient to absorb new entrants to the labor force. Economists at BNP Paribas expect the unemployment rate to move up to 9.7% from 9.6%. Continuing claims fell to 4457K for the week ended Sep 18 from 4540K the week before.
Among other releases, the Chicago Purchasing Manager Index for September increased to 60.4 from 56.7 the month before. A reading above 50 indicates that the number of firms reporting improved business outnumber the ones reporting deteriorating business. The Milwaukee Index fell to 50 for September from 59 in August as six of its nine components fell. The production index fell the most, shedding 10 points to 64.
Stocks jumped higher in early morning trade but started shedding their gains towards 11am. The S&P was last seen at 1144, slightly below yesterday’s close. NASDAQ was trading 0.3% lower at 2368. Treasuries were lower as yields pushed higher. The 10-Yr was trading 3 bp higher at 2.53%. The 30-Yr bond was also 2 bp higher at 3.70%.
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