Economy Strong Despite First Quarter Growth

First quarter growth may not be nearing initial projections, but economists remain optimistic for the rest of the year. Liz Ann Sonders, chief investment strategist at Charles Schwab, said: “The economy still looks strong and we believe the upcoming earnings season will be solid.”

CNBC reports:


Economist: Economy much stronger than Q1 GDP might suggest from CNBC.

Economy on the Rise Despite Hurricanes Harvey and Irma

According to recent reports, the U.S. economy accelerated during the second quarter, surpassing previous predications and reaching its fastest growth rate in over two years. However, the third quarter will likely show a loss of momentum because of the hurricanes which battered the country at the start of the season.

The Commerce Department gave its third estimate earlier this week, revealing that GDP increased at an annual rate of 3.1% between April and June, demonstrating an increase in inventory investment.

Economists throughout the U.S. expect the damage from Hurricanes Harvey and Irma to reduce up to 6/10s of a percentage point in growth in the third quarter.

“The destruction caused by Hurricanes Harvey and Irma and the resulting disruption are expect to be a drag on third-quarter growth,” said Plante Moral Financial Advisors CEO Jim Baird. “Nonetheless, the economy remains on track.”

Hurricane Harvey has impacted retail sales, industrial production and homebuilding and home sales, and other markets will likely see damage as a result of Irma’s strike as well. Rebuilding and development in the aftermath of the storms, however, are likely to boost gross domestic product growth in the fourth quarter as inventory investments from businesses increase.

Daniel Silver of JPMorgan explained: “The data available so far suggest that the firming in real inventory accumulation between second quarter and third quarter could be significant and could add over a full percentage point to growth in the third quarter.”

Pimco Reevaluates Outlook for US Economy

Bill Gross’s Pacific Investment Management Co., or Pimco, recently raised its outlook for the U.S. economy, stating that expansion is likely to be between 2.5% and 3% over the course of the year. At the end of last year, the fund estimated growth of between 2.25% and 2.75%.

According to Pimco, the adjusted assessment is a result of “trends toward growth and spending in the consumer, corporate and public sectors.”

“The global economy will likely experience steady, broad-based growth in 2014 thanks in no small part to the extraordinary expansion in central bank balance sheets in 2013,” said portfolio manager Saumil H. Parikh.

Pimco’s report went on to explain that “rising asset prices in combination with fading near-term fiscal uncertainties will drive global aggregate demand growth forward, adding stability to what has thus far been an on-again, off-again global recovery from the financial crisis of 2008.”

Pimco also reassessed its outlook for the euro zone, now claiming to expect real economic growth in the region to measure between 1% and 1.5%.

“We expect the reduction in fiscal drag in the euro zone periphery will reinforce gradually improving credit conditions to drive aggregate demand growth from well below potential to up toward potential in the year ahead,” Parikh said.

The report also revealed the fund’s expectations for China and Japan in 2014.


U.S. Economy on the Rise

Economists estimate that retail sales increased at a faster pace last month, while the U.S. housing market saw some improvement as the economy recovers.

According to the median forecast of economists surveyed by Bloomberg, purchases at retailers rose 0.8%, the highest in four months. May also saw a 0.6% climb. Household wealth and the labor market are both on the rise, leaving Americans less hesitant in their spending. Cars and trucks were purchased at the fastest rate since 2007.

Millan Mulraine of the U.S. rates research at TD Securities USA LLC explained: “The transition from a soft patch to a more sustained rebound is slowly beginning to take shape. The underlying tone of retail sales is encouraging. The positive momentum in housing will continue. Manufacturing has stabilized.”

Jenny Lin of Ford added, “Economic indicators continue to improve.” The “consumer spending growth pace is slowly picking up.”

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Experts Predict Increased Retail Sales in May

Economists believe that sales at U.S. retailers rose in May as the job market looks up and consumer confidence rises to boost automobile, home furnishing and clothing sales.

Experts predict a 0.4% rise, which would be the biggest in three months. April saw an increase of 0.1%, according to a forecast from a Bloomberg survey.

Gap Inc. and General Motors are two companies who have reported significant gains and hiring increases thanks to higher home and stock prices. Other brands who revealed May gains include L Brands Inc., Victoria’s Secret and Bath & Body Works.

Glenn Murphy, Gap chairman and CEO, said: “We are pleased with the positive customer response to summer product across our brands and the continued momentum in the business.”

Ted Wieseman, an economist at Morgan Stanley, explained: “Consumers are not feeling the need to pare back their spending to offset the impact of the tax increases, with confidence in the labor market rising and balance sheets improving.”

In April, payrolls rose by 149,000 workers, and last month saw another 175,000 enter the labor force.

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DWP Employee Pay Rose 15% in Five Years

According to records released this week, average employee pay at the Los Angeles Department of Water and Power rose 15% over the past few years despite the national economic slump.

DWP workers generally receive more generous pay raises than other city workers. Household income for LA residents fell from $48,882 to $46,148 over a similar period. DWP pay rose from $88,299 to $101,237.

The LA Times explains that “DWP compensation has become a central issue in the May 21 mayoral election, in which there has been much debate over whether the city’s labor contracts are too costly given the fiscal problems that have resulted in major cuts in services.

“The union representing most of the DWP’s workers has become the single biggest source of campaign cash in the race, giving $1.45 million to an independent effort backing City Controller Wendy Greuel.

“The only pay growth comparable to the DWP came at the city Fire Department, where average total salary and other payments also rose 15% over the five years to $132,131. But officials note that about 300 positions were cut from the Fire Department in that period, which required increased overtime payments to fill positions.”

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Brighter Outlook for San Diego Economy

San Diego’s economy seems to be on the rise thanks to a growing construction agency and a steadily improving job market.

Alan Gin, an economist from the University of San Diego, collected the information for the San Diego region’s index of leading economic indicators, which rose almost a full point last month. He explained that the change resulted from a boost in multi-family building permits and less first-time unemployment claims. The economic recovery is expected to continue throughout the area.

“I think we’ll have a good job growth,” Gin said. “I think the housing market will continue to be strong. And as a result, I think the unemployment rate is going to drop locally. It’s already down to about 8 percent.”

The only indicator that fell over the past month, according to Gin, was consumer confidence. He postulates that the decrease is a result of rising gas prices, new payroll taxes and political gridlock.

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Finance Ministers Meet in Brussels to Discuss Economic Pitfalls

As the European crisis continues, financial leaders are seeking ways to gain crisis-management momentum in an effort to avoid future political pitfalls.

Ministers from across the region are now meeting in Brussels  to debate the options of aiding Cyprus and Greece during this chaotic time.

Chancellor Angela Merkel’s council chairman Wolfgang Franz said: “We don’t know yet how we’re going to get out of the crisis. If the crisis is a marathon, we’ve got two-thirds of the course behind us. But the last third is always the hardest.”

Italian 10-year bonds increased to a year-to-date high of more than 4.5%, while the euro fell 2% against the U.S. dollar. The currency change came after European Central Bank President Mario Draghi expressed his concerns regarding the euro’s strength and its effect on recovery.

“The exchange rate is not a policy target, but it is important for growth and price stability,” Draghi said. “We want to see if the appreciation is sustained, and if it alters our assessment of the risks to price stability.”