Chew on that, Powell: GDP, durable goods, jobless claims

Reuters

Chew on that, Powell: GDP, durable goods, jobless claims

Jul 25, 2024 at 3:58 pm GMT

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Major U.S. stock indexes green, Dow up 0.8%, Nasdaq up just 0.1%

Industrials lead sector gainers; Comm svcs biggest loser

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CHEW ON THAT, POWELL: GDP, DURABLE GOODS, JOBLESS CLAIMS

Market participants were treated to a triple play of economic data, which combined to show the U.S. economy is robust, and consumers and corporations alike continue to spend.

That's good news, as it strengthens the narrative that the United States will avoid recession even if it turns out the Fed waited too long to start easing its restrictive policy rate.

The Commerce Department took its first swing at second-quarter GDP USGDPA=ECI, which showed the U.S. economy grew by 2.8% on a quarterly annualized basis.

That is exactly double the first-quarter pace and 80 basis points faster than analysts expected.

On a line-item basis, an 11.6% jump in equipment investment was an eye-catcher. The 4.5% increase in intellectual property/software - which would include AI investment - was also a head-turner.

"The trajectory remains robust for capital spending related to artificial intelligence. We see this as an ongoing opportunity for investors," says Jeffrey Roach, chief economist at LPL Financial.

"Growth rebounded from the weak numbers in Q1 but today's release does not change expectations that the Fed will cut rates at least two times this year as inflation decelerates."

Consumer spending, the tent pole of the U.S. economy, responsible for about 70% of the total, also accelerated, growing by 2.5% and contributing 1.6 percentage points to the top line.

"Consumer spending remains robust, supported by the remarkable resilience of the US labour market, which has continued to add jobs at a decent pace, and the normalisation in rates of inflation, which are gradually closing in on the Federal Reserve’s 2% target," Matthew Ryan, head of market strategy at Ebury.

This graphic shows consumers ramped up their spending on durable and non-durable goods.

Speaking of the devil, new orders for long-lasting, U.S.-made goods USDGN=ECI unexpectedly plunged by 6.6% last month in a rude defiance of the 0.3% growth expected by consensus.

Drilling down into the tireless Commerce Department's report - which includes items ranging from waffle irons to attack drones - a whopping 127.2% plunge in commercial aircraft/parts helped sink the headline, while a 6.1% increase in defense capital goods somewhat mitigated matters.

Excluding defense, new orders plunged an even 7.0%. And excluding transportation, they actually rose 0.5%.

On the bright side, there was a 1.0% increase in so-called core capital goods, which excludes aircraft and defense and is considered a barometer of U.S. corporate spending intentions.

That's a nice reversal from May's 0.9% drop and much more robust than the paltry 0.2% gain economists projected.

"Volatile transportation orders were to blame for the poor headline figure," writes Bernard Yaros, U.S. lead economist at Oxford Economics.

"Core orders, which are a better gauge of future capital spending by companies, performed better than even our above-consensus forecast, reinforcing our sanguine outlook for equipment spending in H2 2024.

And finally, the number of U.S. workers to queue up for jobless benefits USJOB=ECI dipped by 4.1% last week to 235,000, per the Labor Department.

But the overall trend, as expressed by the 4-week moving average of initial jobless claims, is sideways.

Citing variables including the effects of Hurricane Beryl, auto plant retooling, among other things, Oliver Allen, senior U.S. economist at Pantheon Macroeconomics had this to say:

"Looking through the fog, we suspect that the underlying uptrend in claims that became clear a few months ago is ongoing, given that high rates and slowing consumer demand seem to be prompting a bigger number of layoffs."

Ongoing claims USJOBN=ECI, reported on a one-week lag, inched 0.5% lower to 1.851 million, though still well north of the 1.7 million pre-pandemic "normal."

(Stephen Culp)

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