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GDP is 2.4%, Manufacturing Expands, Joblesss Claims Fall, Stocks Surge on News (Daschle Suicidal)
THE WALL STREET JOURNAL ^ | July 31, 2003 | ONLINE NEWS ROUNDUP

Posted on 07/31/2003 9:09:12 AM PDT by Pubbie

WASHINGTON -- The economy experienced a growth spurt in the second quarter amid the largest jump in defense spending since the Korean War. Business spending also picked up.

Gross domestic product, a measure of all the goods and services produced in the U.S., rose at a 2.4% annual rate, much faster than the 1.4% pace in the previous two quarters, the Commerce Department said Thursday.

Economists had expected GDP to rise 1.4% again, according to a survey by Dow Jones.

Spending by the federal government jumped 25.1%, the largest increase since 1967. That jump was attributed to a 44.1% rise in defense spending, the largest since the Korean War, due to the war in Iraq. Federal spending was more than enough to offset a slight decline in spending by state and local governments. The increase in government spending added 1.4 percentage points to GDP growth for the second quarter.

In a separate report, the foundering labor market showed signs of strengthening. Initial jobless claims dropped by 3,000 to a five-month low of 388,000 in the week that ended Saturday, the Labor Department reported. That marked the third straight week of declines, a sign that the labor market may be stabilizing. Economists were expecting an increase of 14,000 claims.

The four-week average of jobless claims, which smooths out weekly fluctuations, declined by 11,750 to 408,750, the lowest level in nearly five months.

And a report from purchasing managers in Chicago offered hope for a laggard in the economic recovery – the manufacturing sector. The Chicago purchasing-managers index rose for the third straight month to 55.9 in July from 52.5 in June. While the report is regional, it bodes well for a national reading on the sector, due out Friday morning. It also prompted a number of economists to revise their estimates for that report from the Institute of Supply Management.

Bill Quan, economist at Mizuho Securities in New Jersey, said in a research note, "In light of today's report, we have revised upward our forecast for tomorrow's NAPM report" to 52.0 in the headline index from 49.8 in June.

On the Mend?

Thursday's reports offered some hope that the economy, shedding war and other uncertainties that had bogged it down earlier in the year, will gain traction in the second half.

"The economy truly does look to be on the mend,'' said Joel Naroff, president of Naroff Economic Advisors. "With investment coming back, the signs seem to be there for a significant rebound in growth going forward.''

However, the Commerce Department will revise its GDP estimate two more times and cautioned that Thursday's report is based on incomplete information.

Indeed, "They are very encouraging numbers," said Cary Leahy, an economist at Deutsche Bank, but "I wouldn't say happy times are here again because we've had so many false starts in the last 12 to 18 months."

In addition to increased government spending, the GDP report showed that businesses started spending again across all categories and that consumers picked up their spending pace as well.

Consumer spending, as measured by personal-consumption expenditures, rose at a 3.3% annual rate during the quarter, after rising 2% in the first quarter. Consumer spending accounts for two-thirds of the economy.

Spending on durable goods, which are items such as cars and appliances that are meant to last three years or more, jumped 22.6% after falling by 2% in the previous quarter. Spending on nondurable goods ticked up by 0.1%.

The freeze on business spending appeared to thaw as companies increased spending by 6.9%, the fastest pace in three years. Within that category, spending on computers and equipment rose 7.5% and spending on structures climbed 4.8%. The gain in business spending helped offset a drop in inventory accumulation during the quarter. Businesses inventories fell by $17.9 billion after a gain of $4.8 billion in the first quarter. The falloff in inventories knocked 0.77 percentage point off GDP growth.

James Glassman, chief economist at JP Morgan, said businesses are unlikely to keep cutting inventories and will have to boost production and hire more workers to meet increasing consumer demand. When this happens it will add substantially to overall economic growth.

"It's the story that's behind the [overall] numbers that's impressive," he said.

Real final sales -- GDP less the change in private inventories -- rose at a 3.2% annual rate, after a 2.3% rise in the previous quarter.

Employment Costs Ease Up

Another Labor Department report released Thursday showed that U.S. employers incurred a much smaller increase in the cost of hiring and retaining workers during the second quarter than they did in the previous quarter. The employment-cost index climbed a seasonally adjusted 0.9%, after a 1.3% gain in the previous period, the Labor Department reported. Benefit costs increased 1.4% and continued to substantially outpace the 0.6% gain in wages and salaries for civilian workers.

In the GDP report, gains in business, government and consumer spending were tempered by a decline in exports, which fell by 3.1%. Imports increased 9.2%. A gain in imports subtracts from overall economic growth.

Inflation was on the decline as energy prices settled down. The price index for gross domestic purchases rose at a 0.3% rate after rising at a 3.4% rate in the first quarter.

However, the price index for personal consumption, a gauge watched closely by the Fed, rose at a 0.9% pace, slower than the 2.7% rate registered in the previous quarter. Fed policy makers in recent months have voiced concern about the threat of deflation.

(Excerpt) Read more at online.wsj.com ...


TOPICS: Extended News; Government; News/Current Events; Politics/Elections
KEYWORDS: bushrecovery; economy; recovery
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This is GREAT news! All the numbers on the economy beat expectations handily! The Bush Recovery is well under way
1 posted on 07/31/2003 9:09:12 AM PDT by Pubbie
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To: Pubbie
I don't think raising GNP by increasing Government Spending is the way to go.
2 posted on 07/31/2003 9:11:43 AM PDT by tomahawk
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To: Pubbie
Spending by the federal government jumped 25.1%

How much of the GDP increase was due to government spending?
3 posted on 07/31/2003 9:12:14 AM PDT by lelio
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To: lelio
Federal spending was more than enough to offset a slight decline in spending by state and local governments. The increase in government spending added 1.4 percentage points to GDP growth for the second quarter.

This is not too clear to me, but is this the answer to your question? I had/have the same question...

4 posted on 07/31/2003 9:15:17 AM PDT by Principled
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To: Principled
If it added 1.4 percentage points to bring the gain up to 2.4%, does that mean without the government spending growth was really 1.0%, below the expected 1.4%.
Again, its not really clear. But when are these figures ever clear the first time around?
5 posted on 07/31/2003 9:18:48 AM PDT by lelio
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To: tomahawk
I don't think raising GNP by increasing Government Spending is the way to go.

Hey, you're raining on their parade.

6 posted on 07/31/2003 9:20:42 AM PDT by steve86
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To: Pubbie
Sounds like an FDR approach to getting out of a recession. If it works fine, but the danger is obvious- as soon as that fed spending ceases or contracts do we have another downturn? I think the primary obstacle right now is psycological, ie people aren't as confident, don't feel as stable and therefore tighten up a bit- self fulfilling prophecy.
7 posted on 07/31/2003 9:21:03 AM PDT by gimmealewinsky (Send the frenchies to show'em how to surrender...)
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To: lelio
I'm sure the estimates already factored in government spending to arrive at 1.4%.
8 posted on 07/31/2003 9:23:27 AM PDT by Prince Caspian (Don't ask if it's risky... Ask if the reward is worth the risk)
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To: gimmealewinsky
Who cares.....Dubbya will ram through yet another tax cut and the dems are more deeply saddened.
9 posted on 07/31/2003 9:24:35 AM PDT by spokeshave (against albore the wood, rats and fogs)
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To: tomahawk
Yes but there was much more to the report than GDP.

Consumer AND Business spending was up, Jobless claims dropped despite an expected increase, and manufacturing is picking up.

Also if it hadn't been for low inventories taking .77 percentage points off the GDP, GDP would have been 3.2!

And besides, My Options in Financial stocks LOVE IT (And so do I!)
10 posted on 07/31/2003 9:25:42 AM PDT by Pubbie (Bill Owens for Prez and Jeb as VP in '08.)
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To: spokeshave
I still say that if the DOW breaks that psychological barrier of 10,000 the 2004 election is over. Being successful in the war on terror and getting the economy revived will put the entire Democrat party on suicide watch
11 posted on 07/31/2003 9:35:35 AM PDT by aegiscg47
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To: BearWash
It's NOT the way to go. Keynsian economics has been s--t
canned for years.
12 posted on 07/31/2003 9:37:04 AM PDT by Nucluside
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To: Pubbie
Don't you just love the fresh sound of whining RATS in the morning?
13 posted on 07/31/2003 9:38:38 AM PDT by wjcsux
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To: Nucluside
"It's not the way to go..."

BUT, the other indicators are up as well, and that will ensure the next election for us!!! Hee Hee Hee.
What's next, Carrville?
14 posted on 07/31/2003 9:40:11 AM PDT by Nucluside
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To: wjcsux
The numbers were excellent across the board!

If this keeps up (and I believe it will because I'm totally long the market) the GOP will be rocking and rolling in Nov '04!
15 posted on 07/31/2003 9:46:20 AM PDT by Pubbie (Bill Owens for Prez and Jeb as VP in '08.)
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To: arete; Starwind
This is a general question about GDP: if automobiles were made of 80% foreign parts and we just slapped them together here and rolled it down to the car lot, would the full $30k price for a car be included in GDP?
I ask as there's much less of a multiplier when you by the above car versus one that's 10% made of foreign parts. But according to the GDP they could be counted the same.
16 posted on 07/31/2003 9:46:29 AM PDT by lelio
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To: lelio; Principled
65% of the increase was from government spending.

Less government purchases, GDP grew at a paltry +0.31%.

The funny thing about this number is that it makes more government spending look like a good thing, and less government spending like a bad thing. Which ironically has some people here cheering bigger government.

State/local purchases declined last quarter. Is that a bad thing? No? Well, it slightly depressed this GDP number.

Some government spending is a good thing -- infrastructure and defense, for example. If we didn't have a military, we could be invaded, and that'd really depress the economy. But that effect is hard to quantify, and to first order all government spending is a misallocation of resources.

17 posted on 07/31/2003 9:49:48 AM PDT by Tauzero (This was not the sand-people, this was the work of Imperial Storm Troopers: only they are so precise)
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To: gimmealewinsky
"If it works fine, but the danger is obvious- as soon as that fed spending ceases or contracts do we have another downturn?"

Of course it might, since, by the very definition of this statistic, government spending is a good thing.

18 posted on 07/31/2003 9:51:53 AM PDT by Tauzero (This was not the sand-people, this was the work of Imperial Storm Troopers: only they are so precise)
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To: Pubbie
I challenge all of you to go to CNN.com's main webpage and find a link to this great news... there isn't even a link under the Business Section!
19 posted on 07/31/2003 9:52:20 AM PDT by Lunatic Fringe (When news breaks, we fix it.)
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To: Tauzero
Is this an improvement?...yes. But I don't see the consumer spending as being susstainable. The consumer has been spending 105%-110% of his income for quite some time. Being so far in debt, an increase in interest rates would not help. The recent spike in the 10 yr. treasury and mortgage rates is not a good sign. I think Greenspan really cheesed-off the bond traders with his comments on the long bond yeild.
20 posted on 07/31/2003 10:21:54 AM PDT by Orangedog (Soccer-Moms are the biggest threat to your freedoms and the republic !)
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