Wednesday was a big day for economic indicators and predictions about the health of the U.S. We got a first look at second quarter gross domestic product growth (4 percent), a policy statement from the Federal Reserve and ADP payroll numbers.
Dionne Searcey wrote about the GDP number for The New York Times, saying the number was well above the 3 percent growth prediction:
The United States economy rebounded heartily in the spring after a dismal winter, the Commerce Department reported on Wednesday, growing at an annual rate of 4 percent from April through June and surpassing economists’ expectations.
In its initial estimate for the second quarter, the government cited a major advance in inventories for private businesses, higher government spending at the state and local level and personal consumption spending as chief contributors to growth. Economists, who had been hoping for a full reversal of the first quarter’s decline, were cheered by the second quarter’s numbers. The consensus forecast for G.D.P. was 3 percent.
“Fantastic,” Douglas Handler, chief United States economist for IHS Global Insight Analysis, said of the second-quarter G.D.P. increase. The bigger-than-expected gain further cemented views that the decrease in America’s overall output during the first quarter was most likely a fluke tied in large part to unusually stormy winter weather and other anomalies. Any dip in gross domestic product outside an official recession is considered rare.
Fed reporter Jon Hilsenrath wrote for The Wall Street Journal that the Fed’s confidence in the economy will put it on-track to end bond purchases by October:
The Federal Reserve said it would scale back its purchases of mortgage and Treasury bonds to $25 billion monthly and delivered a modestly more upbeat assessment of inflation, jobs and the economy, hours after a stronger-than-expected U.S. growth report.
“Economic activity rebounded in the second quarter,” the Fed said in its July policy statement, noting the labor market is improving, the jobless rate declining and inflation moving closer to its 2% objective. It included a qualifier noting that a range of indicators suggest there is still “significant” slack in the job market.
The move kept the central bank on course to end the bond program by October, a wind-down strategy officials have signaled in recent public statements. The Fed launched the latest round of purchases in September 2012, ran them at $85 billion per month at their peak and began gradually winding them down in $10 billion increments in January.
With that program on track to end, attention inside the Fed is increasingly turning to the timing and mechanics of interest rate increases. On this front, officials kept their cards close to their vest, sticking to guidance on rates that they have offered since March.
Looking at the ADP numbers, Bloomberg’s Jeanna Smialek reported that it was the best report since November 2012, giving many confidence:
Companies added 218,000 workers in July, exceeding the average for the year and showing improving demand is bolstering the U.S. job market, a private payrolls report showed today.
The gain this month followed a 281,000 increase in June that was the strongest since November 2012, according to data from the ADP Research Institute in Roseland, New Jersey. The median forecast in a Bloomberg survey of economists called for a 230,000 advance in July.
Businesses are limiting dismissals and taking on more workers, spurring consumer confidence and laying the groundwork for a pickup in household spending that accounts for about 70 percent of the economy. A Labor Department report in two days is projected to show private payrolls climbed by 230,000 workers last month.
“It’s job growth that’s going to fuel further gains for the economy via its benefit to consumer spending, and thus I see pretty good prospects for the second half of the year,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit and among the top ADP forecasters in the Bloomberg survey. “The economy rebounded strongly in the second quarter and we’re seeing strong employment growth continue into the third quarter.”
Investors apparently liked today’s news as the S&P 500 and the Nasdaq closed higher, Caroline Valetkevitch reported for Reuters:
The S&P 500 and Nasdaq ended higher on Wednesday after the Federal Reserve gave a rosier assessment of the U.S. economy while reaffirming that it is in no hurry to raise interest rates.
The U.S. central bank also, as expected, reduced its monthly asset purchases to $25 billion from $35 billion.
Among the biggest positives were bank shares, with the S&P financial index .SPSY up 0.4 percent, helping to support the S&P 500. Shares of Wells Fargo (WFC.N) gained 1.1 percent to $52.10.
“We got the taper as expected, and the real viewpoint of the committee is they can keep monetary policy accommodative even after we reach our inflation and employment goals,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.
The news about additional jobs is likely welcome, particularly for those who continue to look for work. But numbers can be deceiving, and likely under count the unemployed or those who could use more work. GDP growth looks solid, but should be considered after taking into account the drop last quarter. The economic data is pointing to a stronger economy, but it remains to be seen if that is actually the case for consumers.
