By Bob Willis
July 31 (Bloomberg) -- The U.S. economy probably expanded at a faster pace in the second quarter as the temporary stimulus of federal tax rebates offset the drag from housing and rising unemployment, economists said before a report today.
Growth accelerated to a 2.3 percent annual rate from April through June, more than double the previous three months' pace, according to the median forecast in a Bloomberg News survey of 79 economists. The figures may also show inflation cooled.
About $78 billion in tax rebates went out by the end of June, tempering the fallout from the biggest collapse in residential construction since 1982. A report tomorrow may show the economy lost jobs for a seventh consecutive month, heightening the risk that growth will again falter.
``It's hard to say how much weaker consumer spending would have been without the rebates, but I'm sure it would have been weaker,'' said Nigel Gault, chief U.S. economist at Global Insight, a Lexington, Massachusetts, forecasting firm. ``There will probably be some payback later this year.''
The Commerce Department's report on gross domestic product is due at 8:30 a.m. in Washington. The economy grew at a 1 percent annual rate in the first quarter.
Survey projections ranged from a gain of 0.9 percent to as high as 4.2 percent. Today's estimate is the first for the quarter and will be updated in August and September as more information becomes available.
Other reports today are forecast to show labor costs rose in the second quarter at the same pace as in the prior three months and fewer Americans filed claims for jobless benefits last week. The Labor Department will issue both figures at 8:30 a.m.
Data Revisions
The GDP report will also contain revisions to the data going back to the first quarter of 2005.
The chance the economy is now, or will soon be, in recession has dipped over the last few months. Economists surveyed by Bloomberg in the first week of July put the odds at 50 percent, down from as high as 70 percent in April.
Gains in economic growth are in stark contrast to the recession signal sent by the loss of jobs.
The National Bureau of Economic Research, the Cambridge, Massachusetts-based arbiter of economic cycles, defines a recession as a ``significant'' decrease in activity over a sustained period of time. The declines would be visible in GDP, payrolls, production, sales and incomes.
``While it is usual to have GDP go negative in a recession, recessions quite often start with GDP growth still slightly positive,'' David Rosenberg, chief North American economist at Merrill Lynch, wrote this week in a note to clients.
Prior Revisions
Rosenberg pointed out that the initial report on first- quarter GDP in 2001, at the start of the last recession, showed the economy grew 1.2 percent. The figure was subsequently revised to show a 0.5 percent decline.
Economists surveyed by Bloomberg forecast tomorrow's employment report will show payrolls dropped by 75,000 in July, bringing the total number of jobs lost so far this year to more than 500,000.
Consumer spending last quarter probably grew at a 1.7 percent pace, according to economists surveyed by Bloomberg. That compares with a 1.1 percent rate in the January-to-March period that was the slowest since the second quarter of 2001.
Most economists are forecasting the lift from the rebates will fade in the second half of the year. Retail sales rose 0.1 percent in June, less than forecast, indicating consumers may already have started to retrench at the end of the quarter.
Bargain Hunting
Shoppers are hunting for bargains to stretch the buying power of the stimulus checks. Wal-Mart Stores Inc., the largest retailer, said same-store sales in June rose 5.8 percent, the biggest increase in four years, as costumers spent the rebate money on discounted gasoline and food.
``At times like now, when the average American is struggling with the cost of everyday needs, price matters,'' Eduardo Castro-Wright, chief executive officer of Wal-Mart's U.S. stores division, told shareholders last month.
Americans also cut back on purchases of foreign goods last quarter at the same time that U.S. sales overseas grew, leading to a reduction in the trade deficit that also helped the economy accelerate.
The trade gap, adjusted for inflation, averaged $45.1 billion in April and May, down from $49.5 billion in the first three months of the year.
The GDP report may show that prices rose at a 2.4 percent annual pace in the second quarter, down from 2.7 percent in the prior quarter, according to economists surveyed.
Investors are betting the Federal Reserve will hold the benchmark rate unchanged at 2 percent at its Aug. 5 meeting, according to federal funds futures contracts. Fed Chairman Ben S. Bernanke on July 15 told lawmakers that the economy faced threats to both growth and inflation.
There are ``significant downside risks to the outlook for growth'' and ``upside risks to the inflation outlook have intensified,'' he told the Senate Banking Committee in Washington.
Bloomberg Survey
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GDP Personal GDP Initial
Annual Consump. Prices Claims
QOQ% QOQ% QOQ% ,000's
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Date of Release 07/31 07/31 07/31 07/31
Observation Period 2Q A 2Q A 2Q A 27-Jul
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Median 2.3% 1.7% 2.4% 393
Average 2.2% 1.7% 2.3% 396
High Forecast 4.2% 2.9% 3.5% 440
Low Forecast 0.9% 1.0% 0.4% 375
Number of Participants 79 15 46 40
Previous 1.0% 1.1% 2.7% 406
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4CAST Ltd. 1.5% --- --- 395
Action Economics 2.2% 1.3% --- 390
AIG Investments 2.5% --- --- ---
Aletti Gestielle SGR 1.6% 2.9% 1.8% ---
Allianz Dresdner Economic 1.2% --- --- ---
Argus Research Corp. 1.8% --- 3.5% ---
Banc of America Securitie 2.6% --- 2.3% ---
Bancolombia SA 1.9% --- --- ---
Bank of Tokyo- Mitsubishi 2.6% 1.0% --- ---
Barclays Capital 2.5% --- 2.2% 390
BBVA 0.9% --- --- 375
BMO Capital Markets 2.0% --- 2.0% 390
BNP Paribas 1.8% --- 3.5% 420
Briefing.com 2.8% --- 3.0% 380
Calyon 2.6% 1.7% 1.2% ---
CFC Group 2.3% 2.6% --- 390
CIBC World Markets 2.3% --- 2.8% ---
Citi 3.0% --- 1.8% 405
Commerzbank AG 2.5% --- --- ---
Credit Suisse 2.5% --- 2.2% 410
Daiwa Securities America 2.4% --- 0.5% ---
Danske Bank 2.0% 1.8% --- ---
DekaBank 2.5% --- 2.3% ---
Deutsche Bank Securities 1.5% --- 2.6% 385
Deutsche Postbank AG 2.4% --- --- ---
Dresdner Kleinwort 1.9% --- 2.9% ---
DZ Bank 1.6% --- 2.7% ---
First Trust Advisors 3.0% --- 3.0% 395
Fortis 3.4% --- --- ---
FTN Financial 1.2% --- --- ---
Global Insight Inc. 2.3% --- --- ---
Goldman, Sachs & Co. 2.5% --- 2.0% ---
H&R Block Financial Advis 2.4% 1.8% 2.5% 390
Helaba 2.5% --- --- ---
High Frequency Economics 3.0% --- 2.5% 406
Horizon Investments 2.1% --- --- ---
HSBC Markets 2.7% 1.9% 1.2% 390
IDEAglobal 1.8% 1.2% 2.4% 390
Informa Global Markets 2.5% --- 2.5% 405
ING Financial Markets 3.0% --- --- 400
Insight Economics 2.2% --- 2.9% 400
Intesa-SanPaulo 1.5% --- --- 400
J.P. Morgan Chase 2.2% --- 1.9% 395
Janney Montgomery Scott L 1.9% 1.6% 2.3% ---
JPMorgan Private Client 2.5% --- 2.7% 390
Landesbank Berlin 4.2% --- --- 385
Landesbank BW 2.4% --- --- ---
Lehman Brothers 2.6% --- 0.4% 395
Lloyds TSB 2.3% --- 2.8% 385
Maria Fiorini Ramirez Inc 2.0% --- 2.1% ---
Merk Investments 2.1% 1.0% 2.8% 400
Merrill Lynch 1.5% --- 1.4% 440
MFC Global Investment Man 2.3% 1.5% 2.3% 385
Moody's Economy.com 2.3% --- --- 410
Morgan Keegan & Co. 1.6% --- 3.2% ---
Morgan Stanley & Co. 2.4% --- --- ---
National Bank Financial 1.5% --- --- ---
National City Corporation 2.8% --- 2.7% ---
Natixis 2.7% --- --- ---
Nomura Securities Intl. 2.1% --- 2.3% ---
Nord/LB 2.2% --- 3.0% 390
PNC Bank 1.7% --- 2.8% ---
RBS Greenwich Capital 2.4% --- 0.9% 395
Ried, Thunberg & Co. 2.0% --- --- 410
Schneider Trading Associa 2.2% 1.5% 2.8% 390
Scotia Capital 1.7% --- --- ---
Societe Generale 2.6% 2.0% 2.2% ---
Standard Chartered 2.0% --- 2.1% ---
Stone & McCarthy Research 1.7% --- 3.0% 380
TD Securities 2.2% --- --- 395
Thomson Financial/IFR 2.4% --- 3.1% 410
UBS Securities LLC 1.0% --- --- 390
Unicredit MIB 2.5% --- --- 375
University of Maryland 1.8% 1.8% 0.9% ---
Wachovia Corp. 2.9% --- --- ---
Wells Fargo & Co. 1.8% --- 1.3% ---
WestLB AG 2.3% --- --- ---
Westpac Banking Co. 1.8% --- --- 390
Wrightson Associates 2.0% --- --- 410
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To contact the report on this story: Bob Willis in Washington bwillis@bloomberg.net
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