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Hopes high for strong day on Wall Street after US GDP growth revised up Hopes high for strong day on Wall Street after US GDP growth revised up
(about 1 hour later)
The US economy picked up pace in the second quarter and beat economists’ estimates as businesses ramped up investment, helping fuel a second-day bounce-back for Wall Street’s battered financial markets.The US economy picked up pace in the second quarter and beat economists’ estimates as businesses ramped up investment, helping fuel a second-day bounce-back for Wall Street’s battered financial markets.
Gross domestic product (GDP), the broadest measure of goods and services produced across the economy, expanded at a 3.7% seasonally adjusted annual rate in the second quarter of 2015, the Commerce Department said on Thursday, up from the initial estimate of 2.3% growth. Economists had forecast a 3.3% rate.Gross domestic product (GDP), the broadest measure of goods and services produced across the economy, expanded at a 3.7% seasonally adjusted annual rate in the second quarter of 2015, the Commerce Department said on Thursday, up from the initial estimate of 2.3% growth. Economists had forecast a 3.3% rate.
“Consumer are spending, businesses are investing, the housing market is recovering, state and local governments are boosting outlays, and the federal government is no longer a drag on growth,” said Stu Hoffman, chief economist at PNC Financial. “Trade will remain a weak spot with slow global growth and the strong dollar, but solid domestic fundamentals will be more than enough to overcome this.”
The news helped lift US stock markets, which are shaking off days of losses triggered by fears of a slowdown in China, the world’s second largest economy.The news helped lift US stock markets, which are shaking off days of losses triggered by fears of a slowdown in China, the world’s second largest economy.
The Dow Jones Industrial Average was up 196 points (1.2%) to 16,482 by 10am. The S&P 500 and the Nasdaq were also up between 1.2% and 1.3%. It comes after the Dow stormed up more than 600 points on Wednesday, making up ground after days of losses triggered by fears about the health of the Chinese economy.The Dow Jones Industrial Average was up 196 points (1.2%) to 16,482 by 10am. The S&P 500 and the Nasdaq were also up between 1.2% and 1.3%. It comes after the Dow stormed up more than 600 points on Wednesday, making up ground after days of losses triggered by fears about the health of the Chinese economy.
The GDP numbers also come ahead of a crucial meeting of the Federal Reserve in September when the governors may vote for the first increase in interest rates since the recession. The wild gyrations triggered by China’s apparent slowdown had led many to speculate that the Fed may hold off raising rates in September.The GDP numbers also come ahead of a crucial meeting of the Federal Reserve in September when the governors may vote for the first increase in interest rates since the recession. The wild gyrations triggered by China’s apparent slowdown had led many to speculate that the Fed may hold off raising rates in September.
On Wednesday, Bill Dudley, president of the New York Federal Reserve and a member of the central bank’s rate-setting committee, said a September interest rate rise was “less compelling” than it had been a few weeks ago. “I really do hope we can raise interest rates this year,” he added.On Wednesday, Bill Dudley, president of the New York Federal Reserve and a member of the central bank’s rate-setting committee, said a September interest rate rise was “less compelling” than it had been a few weeks ago. “I really do hope we can raise interest rates this year,” he added.
Dan Greenhaus, chief strategist at broker BTIG in New York, said the GDP figures were likely to have an outsized impact on stock market on Thursday.Dan Greenhaus, chief strategist at broker BTIG in New York, said the GDP figures were likely to have an outsized impact on stock market on Thursday.
“This is the second estimate of second quarter GDP which normally has less impact on the market. However, given the intense focus right now on the Fed, this report carries some additional implications. Specifically, Fed officials are likely to view the economy as having a bit more ‘oomph’ than originally thought heading into Q3. Whether they want for more info or not aside, the economy clearly snapped back to a healthy degree from Q1’s weakness,” he wrote in a note to investors.“This is the second estimate of second quarter GDP which normally has less impact on the market. However, given the intense focus right now on the Fed, this report carries some additional implications. Specifically, Fed officials are likely to view the economy as having a bit more ‘oomph’ than originally thought heading into Q3. Whether they want for more info or not aside, the economy clearly snapped back to a healthy degree from Q1’s weakness,” he wrote in a note to investors.
“There were large upward revisions to the investment portion of the report including residential investment (housing) and equipment spending (business) which was way less negative than originally thought. At the same time, there was a fairly large reversal in inventory contribution (+0.22 from -0.08) which mitigates some of the upside surprise,” he wrote.“There were large upward revisions to the investment portion of the report including residential investment (housing) and equipment spending (business) which was way less negative than originally thought. At the same time, there was a fairly large reversal in inventory contribution (+0.22 from -0.08) which mitigates some of the upside surprise,” he wrote.
Fed officials will meet on 16-17 September. On 4 September the Labor Department will release its latest jobs report, and another strong month of job gains could add pressure for a rate hike.Fed officials will meet on 16-17 September. On 4 September the Labor Department will release its latest jobs report, and another strong month of job gains could add pressure for a rate hike.