Thursday, August 30, 2007

2Q GDP Strong, 2Q Inflation Decelerates, Initial Jobless Claims Rise

- Preliminary 2Q GDP rose 4.0% versus estimates of a 4.1% increase and a prior estimate of a 3.4% gain.

- Preliminary 2Q Personal Consumption rose 1.4% versus estimates of a 1.5% gain and a prior estimate of a 1.3% increase.

- Preliminary 2Q GDP Price Index rose 2.7% versus estimates of a 2.7% gain and a prior estimate of a 2.7% increase.

- Preliminary 2Q PCE rose 1.3% versus estimates of a 1.4% gain and a prior estimate of a 1.4% increase.

- Initial Jobless Claims rose to 334K versus estimates of 320K and 325K the prior week.

- Continuing Claims rose to 2579K versus estimates of 2575K and 2566K prior.

BOTTOM LINE: The US economy expanded in the second quarter at the fastest pace in more than a year as exports surged and business spending accelerated, Bloomberg said. Trade contributed 1.4 percentage points to growth, the most since 1996. Commercial construction rose 28%, the most in 26 years. The Core PCE, the Fed’s favorite inflation gauge, rose 1.3% during the quarter, the slowest increase in four years. Investment in equipment rose at a 4.3% rate, almost double the prior estimate. I expect growth to average about 2.5% in the second half of this year as exports remain strong and inflation decelerates further.

First-time applications for jobless benefits unexpectedly rose, Bloomberg reported. The four-week moving-average rose to 324,500 from 318,250 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, rose to 2.0% from 1.9% the prior week. While the labor market will likely loosen a bit more in the short-run, I expect it to remain healthy over the intermediate-term without generating substantial unit labor cost increases.

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