28 August 2003, 11:56  U.S. Economy Probably Grew Faster Than Earlier Estimated in Second Quarter

Aug. 28 (Bloomberg) -- The U.S. economy may have grown faster in the second quarter than the government initially reported, contributing to a slowdown in firings in recent weeks, economists expect government reports to show today. Gross domestic product, or the value of all goods and services produced, probably grew from April through June at a 2.9 percent annual pace, based on the median forecast of 69 economists surveyed by Bloomberg News. That's faster than the 2.4 percent rate reported last month. First-time jobless claims are forecast to total less than 400,000 for the fifth week in six. Figures this quarter suggest that household spending is gaining momentum, powered by lower income tax rates and helping retailers, including Wal-Mart Stores Inc. Lean inventories are prompting businesses to boost production to keep pace with increasing demand. That suggests the economy is poised to expand at a faster pace in the last half of the year.
``The good news is that recent economic data point to accelerating growth later this year and into 2004,'' said Jerry Jasinowski, president of the National Association of Manufacturers. ``Consumer confidence, retail sales, housing starts and manufacturing orders and production are all on the rise.'' First-time unemployment benefit claims may have risen to 390,000 in the week ended Saturday from 386,000 the prior week, based on the median forecast. Some economists consider 400,000 the dividing line between job-market expansion and contraction. The Commerce Department is scheduled to release the revised GDP report at 8:30 a.m. Washington time, the same time that the Labor Department is set to publish the jobless claims data.
Growth Forecasts
The economy may expand at a 3.6 percent pace this quarter and at a 3.7 percent rate in the last three months of the year, according to economists surveyed by Bloomberg News this month. Consumer spending, which accounts for 70 percent of the economy, probably grew at a 3.6 percent annual pace in the second quarter instead of the 3.3 percent the government's estimated last month, based on the median forecast in the Bloomberg survey. Evidence the economy is accelerating has led companies to reduce the pace of firings, though not necessarily crank up hiring plans yet. ``This is not atypical of the beginning of an expansion -- hiring typically lags activity,'' said Ryan Brecht, an economist at MMS International in Belmont, California. There won't be ``solid gains'' in hiring until the fourth quarter, he said.
Retail Sales
Purchases are accelerating this quarter. Retail sales rose 1.4 percent in July, the biggest increase since March, the government reported earlier this month. The rise was led by more purchases of automobiles, clothing and electronics and followed a 0.9 percent gain in June. Purchases are forecast to continue to increase this month. Sales at stores open at least a year will rise 4 percent to 5 percent from a year earlier, according to a Bank of Tokyo- Mitsubishi Ltd. survey of 80 chains. The firm had previously forecast an increase of as much as 4 percent for the month. Wal-Mart Stores, the world's biggest retailer, this week increased its August forecast to a gain of 4 percent to 6 percent, citing sales of clothing, groceries and school supplies. Target Corp., the No. 2 U.S. discounter, also said sales have been higher than expected.
Consumer Spending
Auto sales are also improving. Purchases of cars and light trucks may reach an 18.2 million annual rate this month, making it the strongest month of the year, according to projections from J.D. Power and Associates. Light vehicles sold at a 17.3 million rate in July. ``Consumer spending could grow as much as 5 percent in the third quarter,'' said Feldman. That would be the strongest since the fourth quarter of 2001 when the economy grew at a 2.7 percent rate and was emerging from recession. Business spending is also picking up. Orders for goods made to last at least three years rose for a second straight month in July, a government report showed Tuesday. Shipments of non- defense capital goods excluding aircraft, which the government uses to construct the GDP figures, rose 2.9 percent for a second straight month.
Corporate investment in equipment and software rose at a 7.5 percent annual pace from April through June, the biggest quarterly increase in three years, last month's advance GDP report showed. Commerce's report will also include an initial estimate of second-quarter corporate profits. Pretax earnings adjusted for the value of inventories and capital depreciation probably rose 6 percent in the second quarter, almost twice the 3.3 percent gain in the previous month, according to economists at UBS. Inflation probably remained subdued, the report is expected to show. The GDP price deflator, a gauge of inflation tied to the report, is expected to have grown at a 1 percent annual rate in the second quarter, the same as the government's first estimate. //www.bloomberg.com

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