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Consumer spending, which accounts for over over two-thirds of U.S. economic activity, fell at a 1.2 percent rate in the second quarter after rising 0.6 percent in the previous quarter.
That sliced 0.88 percentage points from second quarter GDP, the department said.
In contrast to the weak consumer reading, business investment improved significantly in the second quarter. The advance report showed business investment decreased at an 8.9 percent rate in the second quarter after diving 39.2 percent in the previous quarter.
Investment in nonresidential structures fell at an 8.9 percent rate compared to a 43.6 percent drop in the first quarter.
Residential investment, which is at the core of the longest recession since the Great Depression, dropped at a 29.3 percent rate in the April-June period after plummeting by 38.2 percent in the first quarter.
"This report has written all over it the continued divergence between consumers and businesses," said Ashraf Laidi, chief market strategist at CMC Markets in London.
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 1.0 percent in the second quarter of 2009, (that is, from the first quarter to the second), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 6.4 percent.
The much smaller decrease in real GDP in the second quarter than in the first primarily reflected much smaller decreases in nonresidential fixed investment, in exports, and in private inventory investment, upturns in federal government spending and in state and local government spending, and a smaller decrease in residential fixed investment that were partly offset by a much smaller decrease in imports and a downturn in PCE.
In the week ending July 25, the advance figure for seasonally adjusted initial claims was 584,000, an increase of 25,000 from the previous week's revised figure of 559,000. The 4-week moving average was 559,000, a decrease of 8,250 from the previous week's revised average of 567,250.
The advance number of actual initial claims under state programs, unadjusted, totaled 507,464 in the week ending July 25, a decrease of 78,111 from the previous week. There were 376,123 initial claims in the comparable week in 2008.
New orders for manufactured durable goods in June decreased $4.1 billion or 2.5 percent to $158.6 billion, the U.S. Census Bureau announced today. This decrease followed two consecutive monthly increases including a 1.3 percent May increase. Excluding transportation, new orders increased 1.1 percent. Excluding defense, new orders decreased 0.7 percent.
Reports from the 12 Federal Reserve Districts suggest that economic activity continued to be weak going into the summer, but most Districts indicated that the pace of decline has moderated since the last report or that activity has begun to stabilize, albeit at a low level. Five Districts used the words "slow", "subdued", or "weak" to describe activity levels; Chicago and St. Louis reported that the pace of decline appeared to be moderating; and New York, Cleveland, Kansas City, and San Francisco pointed to signs of stabilization. Minneapolis said the District economy had contracted since the last report.
The Conference Board Consumer Confidence Index™, which had retreated in June, declined further in July. The Index now stands at 46.6 (1985=100), down from 49.3 in June. The Present Situation Index decreased to 23.4 from 25.0 last month. The Expectations Index declined to 62.0 from 65.5 in June.
Says Lynn Franco, Director of The Conference Board Consumer Research Center: "Consumer confidence, which had rebounded strongly in late spring, has faded in the last two months. The decline in the Present Situation Index was caused primarily by a worsening job market, as the percent of consumers claiming jobs are hard to get rose sharply. The decline in the Expectations Index was more the result of an increase in the proportion of consumers expecting no change in business and labor market conditions, as opposed to an increase in the percent of consumers expecting conditions to deteriorate further. However, more consumers are pessimistic about their income expectations, which does not bode well for spending in the months ahead."
At the time of our February report, financial markets at home and abroad were under intense strains, with equity prices at multiyear lows, risk spreads for private borrowers at very elevated levels, and some important financial markets essentially shut. Today, financial conditions remain stressed, and many households and businesses are finding credit difficult to obtain. Nevertheless, on net, the past few months have seen some notable improvements. For example, interest rate spreads in short-term money markets, such as the interbank market and the commercial paper market, have continued to narrow. The extreme risk aversion of last fall has eased somewhat, and investors are returning to private credit markets. Reflecting this greater investor receptivity, corporate bond issuance has been strong. Many markets are functioning more normally, with increased liquidity and lower bid-asked spreads. Equity prices, which hit a low point in March, have recovered to roughly their levels at the end of last year, and banks have raised significant amounts of new capital.
That’s the backdrop to our current situation. And here the picture turns brighter, as we glimpse the first solid signs since the recession started more than a year and a half ago that economic growth may be poised to resume. Indeed, I expect that to happen sometime this year. Financial conditions have improved markedly in recent months. The stock market has rallied and investor appetite for corporate bonds and other assets has rebounded, restoring access to capital at reasonable rates for many healthy companies, including financial institutions. Measures of stress in the markets for short-term funding have also diminished. At the same time, the housing sector finally seems to be stabilizing. Housing starts have leveled off and, in an encouraging sign, sales are beginning to improve. Meanwhile, house price declines may finally be abating. Consumer spending may also be stabilizing. Payrolls are still shrinking at a dreadful pace, but at least the momentum of job losses has slowed a bit in the past two months.
Sales of single-family homes increased by 11.0% to a seasonally adjusted annual rate of 384,000 compared to the prior month, the Commerce Department said Monday. Though, year-over-year, new-home sales were 21.3% lower than the level in June 2008.
The median price for a new home was $206,200 in June, down 12.0% from $234,300 in June 2008. On a monthly basis, the price fell from May 2009's $219,000.
Here is the gist: if GDP (production and incomes, that is) rises or falls two percent due to the business cycle, the unemployment rate will rise or fall by one percent. The magnitude of swings in unemployment will always be half or nearly half the magnitude of swings in GDP
The Great Recession, which rolled over our financial lives like one of P.J. Keating's giant pavers, is most likely over. Home sales, while still far below the levels of a year ago, have risen for three straight months—a first since 2004. The stock market has rallied 44 percent since March, thanks to renewed optimism and improving earnings from big companies like Goldman Sachs and Apple. In June, seven of the 10 indicators in the Conference Board Leading Economic Index pointed upward, including manufacturing hours worked and unemployment claims. Macroeconomic Advisers, the St. Louis–based consulting firm, says the economy is expanding at a 2.5 percent annual rate in the current quarter. Economic activity "will increase slightly over the remainder of 2009," Federal Reserve chairman Ben Bernanke told Congress.
The Conference Board LEI for the U.S. increased for the third consecutive month in June. Most of the components contributed positively to the index this month except real money supply* and manufacturers' new orders for nondefense capital goods*. The six-month change in the index has risen to 2.0 percent (a 4.1 percent annual rate) in the period through June, up substantially from - 3.1 percent (a –6.2 percent annual rate) for the previous six months, and the strengths among the leading indicators have remained balanced with the weaknesses in recent months.