Consumer spending, inventories seen lifting U.S. second-quarter GDP

#GNN - U.S. economic growth likely rebounded in the second-quarter from a winter-induced slump at the start of the year and will probably continue to gather momentum through the rest of 2014.

Gross domestic product likely grew at a 3.0 percent annual rate, according to a Reuters survey of economists, lifted by an acceleration in both consumer spending and stock accumulation by businesses.

"Pretty much across the board, components will look better. I do think we can sustain a 3 percent growth number for the next couple of quarters," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

Earlier in the second quarter, growth estimates were as high as 4 percent, but they were lowered as consumer spending and business investment rebounded less than expected.

With output having contracted at a 2.9 percent pace in the January-March period, first-half growth was likely flat. As such, growth for the year as a whole could average below 2 percent.

The economy was slammed by an unusually cold winter in early 2014 and also hurt by a slower pace of inventory accumulation and the expiration of long-term unemployment benefits - temporary factors that have since lifted.

Employment growth, which has exceeded 200,000 jobs in each of the last five months, and strong readings on the manufacturing and services sectors from the Institute for Supply Management have underpinned expectations for a strong finish to the year.

The Commerce Department will release its first snapshot of second-quarter GDP at 8:30 a.m. EDT (1230 GMT) on Wednesday. It will also publish revisions to GDP data going back to 1999 as well as for the first quarter of 2014.

UPWARD GDP REVISIONS EYED
Economists expect upward revisions to output for the last three years, noting that an alternative growth measure, gross domestic income, is running above GDP. The government tends to revise GDP towards GDI.

"Upward revisions to GDP would also be consistent with the performance in the labor market, which has been unusually strong relative to recent growth patterns," said Eric Green, chief economist at TD Securities in New York.

The GDP data will be released only hours before U.S. Federal Reserve officials conclude a two-day policy meeting. It is not expected to have a material impact on the future course of monetary policy, with Fed Chair Janet Yellen focused on labor market developments and inflation.

"Yellen will be looking to these revisions as affirmation that growth and inflation are not worse than expected," Green said.

Consumer spending growth likely picked up after braking to a 1.0 percent pace in the first quarter because of weak healthcare spending. The increase is anticipated despite weakness in spending on utilities.

Inventories are expected to have added a full percentage point to second-quarter GDP growth after slicing off 1.7 points in the prior period, while exports were likely a drag on growth for a second consecutive quarter.

Underscoring the economy's strengthening fundamentals, a measure of domestic demand that strips out exports and inventories is expected to have accelerated after almost stalling in the first quarter.

Business investment likely rebounded as did spending on home building. Government spending is expected to have snapped two straight quarters of declines.

(GNN,Reuters,AIP)(Reporting by Lucia Mutikani; Editing by Paul Simao)

Related articles

• #Investors pin #growth hopes on U.S. as Ukraine crisis casts shadow on Europe (gnn-aip.tk)
• U.S. retail sales, manufacturing data point at firming economy (gnn-aip.tk)
• China June bank loans beat expectations as Beijing steps on the gas (gnn-aip.tk)
• Japan ex-economy minister Takenaka says unthinkable to debate BOJ exit now (gnn-aip.tk)
• U.S. import prices barely rise in June (gnn-aip.tk)
• #China shares lead Asia higher, dollar buoyed (gnn-aip.tk)
• SBP leaves policy rate unchanged at 10 pc (gnn-aip.tk)
• Sluggish Latin #American #results show risks for U.S. #companies (gnn-aip.tk)
• BOJ says inflation to stay above 1 pct despite cut in GDP forecast (gnn-aip.tk)
• Trendy Chipotle burritos show how pricing power belongs to the hip (gnn-aip.tk)

#China shares lead Asia higher, dollar buoyed

#GNN - #Asian #stocks shrugged off a drop in Wall Street and hovered near three-year highs on Monday, with China taking the lead after data showed a robust jump in profits earned by industrial firms in the world's second-largest economy.

The dollar traded near six-months peaks against a basket of major currencies as the euro continued to sag.

Profits earned by Chinese industrial firms rose 17.9 percent in June to 588.08 billion yuan ($94.98 billion) from a year earlier, up sharply from an 8.9 percent rise in May, the National Bureau of Statistics said.

Recent data have reinforced market expectations that the Chinese economy is powering through its recent soft patch as the government uses targeted stimulus measures to support growth.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.2 percent, close to a three-year high of 509.23 scaled on Friday.

China's CSI300 jumped 2.3 percent and the Hang Seng climbed 0.8 percent.

Tokyo's Nikkei, which hit a six-month closing high Friday, was up 0.5 percent.

Funds from Middle Eastern and Asian investors were trickling in again as the Muslim fasting month ends, helping to shore up regional stocks, said Soichiro Monji, chief strategist at Daiwa SB Investments in Tokyo.

"Geopolitical concerns remain as the conflict in the Ukraine does not look like it will end soon, but there is some relief spreading that the impact will be contained," he said.

The focus turned to whether this week's run of U.S. data would be strong enough to keep fuelling risk appetite.

Upcoming U.S. indicators include the Case-Shiller price index on Tuesday, second-quarter GDP due on Wednesday and non-farm payrolls on Friday.

Factory activity surveys for major Asian economies will also be released on Friday.

The euro traded little changed at $1.3432, within close reach of $1.3421 plumbed on Friday, its lowest since November 2013.

The euro took another hit on Friday when Germany's Ifo business climate index painted a gloomy picture of the economy.

It had already been under pressure from a range of factors including expectations of further easing by the European Central Bank and diverging interest rates seen favouring the U.S. over Europe.

"We should brace for the euro breaking below key support at 1.34, given diverging U.S. and European monetary policies. Dollar buying pressure is building as shown by the strength of the dollar index, which this week's data, if upbeat, could enhance further," said Junichi Ishikawa, market strategist at IG Securities in Tokyo.

The two-day Federal Reserve policy review ending on Wednesday was also in focus but expectations were for Chair Janet Yellen to deliver the usual dovish message.

The dollar index, a gauge of its strength against a basket of key currencies, stood little changed at 81.026 after striking a near six-month high of 81.804 on Friday.

The dollar fetched 101.81 yen, having lost a bit of momentum in the wake of a rise in U.S. Treasury yields after climbing to a two-week high of 101.94 on Friday.

While the attention of equity and currency markets has shifted towards major corporate earnings and macroeconomic trends, geopolitical issues remained a key factor in commodities such as oil.

Brent crude shed 0.4 percent to $107.96 a barrel but still retained a chunk of its gains from Friday, when it climbed more than $1 as fighting in Ukraine and deteriorating relations between Russia and the United States ignited new fears of supply disruptions. [O/R]

(Editing by Eric Meijer & Kim Coghill)

• Tokyo stocks open up 0.28 percent (gnn-aip.tk)
• Dollar stabilizes after Malaysian plane crash jitters (gnn-aip.tk)
• Another lender?: Analysts tip-toe around BRICS's new bank (gnn-aip.tk)
• Japan investors bulk up on French bonds, bet on euro zone "Japanisation" (gnn-aip.tk)
• EU's Juncker wins approval with 'grand coalition' program (gnn-aip.tk)
• Japan ex-economy minister Takenaka says unthinkable to debate BOJ exit now (gnn-aip.tk)
• #EU edges to #economic sanctions on #Russia but narrows scope (gnn-aip.tk)
• BOJ says inflation to stay above 1 pct despite cut in GDP forecast (gnn-aip.tk)
• Sluggish Latin #American #results show risks for U.S. #companies (gnn-aip.tk)
• Apple revenue lags Street's view despite strong #China #growth (gnn-aip.tk)

#Investors pin #growth hopes on U.S. as Ukraine crisis casts shadow on Europe

#GNN - With the prospect of stiffer sanctions against Russia rattling confidence in Europe, investors will be looking to the United States and China to underpin the global economy.

Wednesday's U.S. gross domestic product (GDP) reading and jobs data on Friday will help markets to judge the strength of the economy's rebound and the likely speed of the Federal Reserve's return to more conventional monetary policy. The Fed meets on Tuesday and Wednesday.

"The U.S.-China story is looking more encouraging," said James Knightley, an economist with ING. "With the European Central Bank's moves, that should allow the euro zone economy to swing upwards but with a good six- to 12-month lag."

In Europe, the downing of a Malaysia Airlines airliner over eastern Ukraine has left countries such as Germany with little choice but to change their long-passive stance and impose tougher sanctions on Moscow over the role of pro-Russian separatists.

Early this week, European Union ambassadors are expected to meet to finalize sanctions that could include closing EU capital markets to state-owned Russian banks, placing an embargo on arms sales and restricting supply of energy technology.

Globally, such sanctions would bite hardest in Europe, where Russia does most trade, compounding economic problems not only for Russia but throughout the region.

The International Monetary Fund has already flagged the 'chilling effect' on investment in Russia of sanctions as it pared back its forecast for global economic growth last week.

Confidence amongst businesses in Germany, which accounts for more than one quarter of all exports across the European Union, has dipped further since the plane crash.

"The situation is very dangerous," said Michael Heise, chief economist of Allianz, one of the globe's largest fund investors.

"An escalation carries large risks for the economy," he said, cautioning in particular of the knock to confidence. "There is a big risk from further sanctions although one has to accept that clear (diplomatic) signals are needed."

BOUNCE-BACK
The crisis comes at a delicate moment for the 18 countries using the euro, where a fledgling recovery is losing pace. Investors will get a snapshot of the bloc's inflation rate, which has sunk well below the European Central Bank's target, on Thursday.

With Britain, one of the stronger European economies, caught up in the push for mutually painful sanctions against Russia, economic growth prospects hinge on the United States and China.

"We think there is going to be a bounce-back in (U.S.) gross domestic product," said ING's Knightley. The Reuters consensus shows annualized growth picking up to 3 percent in the April-June quarter.

Data from Beijing is expected to confirm China's economy picked up in July after government moves to boost lending to business, such as reducing the amount of cash banks must hold in reserve.

China's economy grew at 7.5 percent in the second quarter. But the drags on growth, including a downturn in property prices and high local government debts, are similar to those in Europe.

Analysts believe that deeper reforms, such as overhauling giant state companies, will be needed in the long term to keep the economy growing at the pace the authorities want.

That keeps the focus on U.S. Federal Reserve and how fast it will run down the stimulus that has pumped cheap money around the world, prompting investors to take increasing risks.

The Fed gathers on Tuesday for its two-day meeting but no change of course is expected yet.

Earlier this month, Federal Reserve Chair Janet Yellen signaled that she would keep the central bank's purse strings loose until the effects of the financial crisis are "completely gone."

But some analysts say the central bank may be forced to take a stricter approach to avoid pumping up market bubbles.

"People worry that the Fed may raise interest rates earlier than expected," Nie Wen, an analyst with Hwabao Trust in Shanghai, told Reuters. He predicts a rise in interest rates as soon as early next year.

Michael Heise of Allianz warns that keeping money too cheap for too long carries a major risk.

"If the central banks stay too accommodative for too long, you can have a boom ... and it can come to a massive correction."

In a reminder of the delicate balance facing financial policymakers, Argentina will seek next week to reach agreement with investors suing the country for full repayment of their bonds.

President Cristina's Fernandez's unflinching stance would appear to indicate that the country will go down to the wire. If talks fail, Argentina faces its second default in 12 years.

(Additional reporting by Kevin Yao in Beijing, Adrian Croft in Brussels and David Chance in Washington; Editing by Ruth Pitchford)

• Grieving Dutch minister made Europe re-think #Russia sanctions (gnn-aip.tk)
• #EU edges to #economic sanctions on #Russia but narrows scope (gnn-aip.tk)
• Another lender?: Analysts tip-toe around BRICS's new bank (gnn-aip.tk)
• Japan investors bulk up on French bonds, bet on euro zone "Japanisation" (gnn-aip.tk)
• #Russia to cooperate UN probe in #MH17 crash (gnn-aip.tk)
• China June bank loans beat expectations as Beijing steps on the gas (gnn-aip.tk)
• Apple revenue lags Street's view despite strong #China #growth (gnn-aip.tk)
• Russian participants urged to quit UK air show (gnn-aip.tk)
• Petrol prices rise in Crimea despite Russian promise (gnn-aip.tk)
• Modi's farm export curbs may ease India's June inflation (gnn-aip.tk)

U.S. retail sales, manufacturing data point at firming economy

(GNN) - A gauge of U.S. consumer spending rose solidly in June, in the latest sign that the economy ended the second quarter on a firmer footing.

That momentum appeared to have carried into the third quarter, with other data on Tuesday showing factory activity in New York state expanded sharply in July.

"It reinforces what looks to be an economy gaining more traction," said Eric Green, chief economist at TD Securities in New York.

The Commerce Department said core sales, which strip out automobiles, gasoline, building materials and food services, increased 0.6 percent last month after rising an upwardly revised 0.2 percent in May.

Core sales correspond most closely with the consumer spending component of gross domestic product. They were previously reported as being flat in May and economists expected them to rise 0.5 percent in June.

U.S. stocks traded higher, while prices for U.S. Treasury debt rose marginally.

June's gains and May's upward revision suggested an acceleration in consumer spending in the second quarter after it was held back by weak healthcare spending in the first three months of the year.

A surprise drop in receipts for automobiles, however, saw overall retail sales rise only 0.2 percent in June after a 0.5 percent advance in May.

While the rise in retail sales lagged economists' expectations for a 0.6 percent increase, June's report added to signs of the economy's strengthening fundamentals, which could buoy optimism the recovery is on a self-sustaining path.

The economy contracted sharply in the first quarter, but that was probably a temporary setback.

BRIGHTENING OUTLOOK

From employment to manufacturing, the economy appears to be firing on nearly all cylinders, with even housing regaining its footing after slumping in late 2013 following a run-up in mortgage rates. Growth estimates for the second quarter top a 3.0 percent annual rate.

The steady run of fairly upbeat data, as well as slightly higher inflation readings, prompted Goldman Sachs to move forward its expectations for the first interest rate increase by the Federal Reserve to the third quarter of next year from the first quarter of 2016.

The U.S. central bank, which is winding down its monthly bond purchasing program, has kept its benchmark interest rate near zero since December 2008.

Fed Chair Janet Yellen told lawmakers on Tuesday that while the economy continued to improve, the recovery was not yet complete, citing still-high unemployment.

In another report, the New York Fed said its Empire State general business conditions index jumped to 25.60 this month, the highest since April 2010, from 19.28 in June.

New orders edged up, while factory employment and shipments surged. The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions.

Overall retail sales in June were restrained by a 0.3 percent fall in receipts at auto dealerships. The decline is surprising given automakers reported a surge in motor vehicle sales in June.

Auto sales had increased 0.8 percent in May. Excluding autos, sales grew 0.4 percent after rising by the same margin in May. There were increases in sales at non-store retailers, which include online sales, as sales at clothing retailers.

Receipts at sporting goods shops rose as did those at electronics and appliances stores. But sales at building materials and garden equipment suppliers fell 1.0 percent.

In another report, the Commerce Department said business inventories rose 0.5 percent in May after advancing 0.6 percent the prior month, suggesting restocking will still be a boost to second-quarter growth.

(Reuters)(GNN - AIP)(Reporting by Lucia Mutikani, additional reporting by Rodrigo Campos in New York; Editing by Meredith Mazzilli)

Related articles

• Domino effect of the GSP Plus
• Mining contracts: Pakistan must study global models to court investors
• Exclusive: Prosecutors' case against GM focuses on misleading statements
• Software Entrepreneurs Must Go Mobile-First Or Die

• Modi's farm export curbs may ease India's June inflation (gnn-aip.tk)
• Japan investors bulk up on French bonds, bet on euro zone "Japanisation" (gnn-aip.tk)
• Bombardier says firmer economy to boost industry jet deliveries (gnn-aip.tk)
• Citi, U.S. $7 billion settlement announcement expected Monday (gnn-aip.tk)
• UPDATE 5-Political novice wins power in Slovenia, hints at revisiting economic reform plan (gnn-aip.tk)
• UPDATE 1-Whiting Petroleum to buy Kodiak Oil for $3.8 bln in stock (gnn-aip.tk)