Thursday's News Recap: U.S., Canadian GDP Data Soft, U.S. Jobless Claims Spike

News Recap | Written by CEP News | Jul 31 08 20:49 GMT |

(CEP News) - Concerns about the U.S. economy bubbled back up to the surface on Thursday with the release of softer-than-expected second-quarter U.S. GDP data, while a spike in weekly jobless claims was largely attributed to legislative changes. In Canada, GDP data surprised to the downside, showing a contraction in May. The advance U.S. GDP report came in lower than expected for the second quarter, rising by 1.9% against expectations of 2.3% growth, the Bureau of Economic Analysis reported Thursday. Revisions showed the U.S. economy shrank 0.2% in the fourth quarter of 2007. The negative figure is the first decline in quarterly growth since the third quarter of 2001. Revisions also showed the first quarter grew at 0.9%, down one-tenth from a previously reported 1.0% growth. "Despite the weaker than expected print on U.S. GDP in Q2, the report is unlikely to sway the Fed's interest rate decision next week in either direction, since output growth in 2008 is likely to remain in line with the Fed's central tendency of 1% to 1.6%," said Millan Mulraine, economics strategist from TD Securities. "U.S. consumers continue to be buffeted by the headwinds of a deteriorating labour market, high energy prices, wealth reduction from the prolonged correction in the housing market and tighter credit conditions." Canadian GDP for May was also released and showed a dip of 0.1% from the previous month against expectations for a second consecutive monthly increase. Statistics Canada cited a "significant decrease" in the energy sector in May, including a 1.2% decline in mining and oil and gas extraction, as contributing to the decline. It is "difficult to find a silver lining in this report if indeed one exists at all," said HSBC Canada market strategist Stewart Hall. "Rather the effect of the report is to sap what optimism may have been fostered by the data stream that had flowed out of the month of May." U.S. initial jobless claims for the week ending July 26 shot up to 448k, above expectations for a 393k reading and higher than the previous week's revised 404k figure. Continuing claims for the week ending July 19 rose to 3.22 million from the previous week's downwardly revised 3.097 million. "This massive 44K rise was probably due in large part to the Labour Department in the U.S. changing the rules to make filing for unemployment easier," noted Charmaine Buskas, senior economics strategist from TD Securities. As part of the changes, which came into effect on June 30, the government also extended benefits for up to 13 weeks. In an interview on CNBC, Former Federal Chairman Alan Greenspan warned that if the Federal Reserve is given a role to oversee the financial system it could undermine its credibility. Greenspan said the U.S. is facing a "once in a century crisis," and warned that the U.S. is teetering on the brink of recession. When asked about the GSE bailout, Greenspan said Treasury Secretary Henry Paulson had no choice but to support Fannie and Freddie, but warned against the Federal Reserve becoming involved in fiscal policy. Speaking before the Exchequer Club of Washington, U.S. Treasury Secretary Paulson said the stimulus package has supported the economy in the last year. Paulson said market turmoil and energy prices have dragged on the economy, while the labour market has softened. He added that the key to stabilizing housing and the financial markets is to work through unsold homes. Paulson noted that existing home inventories are expected to remain elevated for some time. The ISM-Chicago business barometer bounced into growth mode in July following five months of slowdown. The growth was led by advances in production and new orders, even as prices hit a 28-year high and employment remained in contraction for the eighth straight month. The headline index grew at 50.8 in July, the first spurt of growth since January, following a 49.6 reading in June. Economists were expecting modest contraction at 49.0. The manufacturing sector in Kansas City bounced back in July, while the prices paid index remained at historically high levels, according to the Federal Reserve Bank of Kansas City's manufacturing activity index. The production index jumped to 7 in July, a large increase from the previous year's reading of -10. According to the U.S. Institute for Supply Management (ISM), the Milwaukee manufacturing index rebounded to 44 in July, compared to June's reading of 39. The manufacturing index came in slightly above the consensus figure of 43.5. The prices paid index decreased slightly to 74 from the previous month's level of 75. Business activity in New York City dropped in July, according to the National Association of Purchasing Management-New York. The current business conditions index slid to 38.5 in July, the sixth month this year that the index has fallen. Inflation pressures are more pronounced as the prices paid index hit a 10-month high of 75, while purchasing volumes weakened as the quantity of purchases index dropped to 44.8 in July. Underground natural gas storage in the United States increased 65 billion cubic feet in the week ending July 25, the Energy Information Administration (EIA) said Thursday. The weekly increase was slightly below the +70 Bcf Bloomberg estimate. In the previous week, the EIA reported a supply increase of 84 Bcf. Speaking in an interview on CNBC, White House officials remained upbeat on the economic outlook for the United States and Thursday morning's advance U.S. GDP report. "We're quite happy with the number," said Edward Lazear, chairman of the Council of Economic Advisers. Americans have not spent all of their stimulus cheques, which should continue to support growth down the road, he added. Lazear went on to point out that strong productivity growth in the United States was responsible for keeping the U.S. economy competitive and exports high. Consequently, the export economy should not be neglected, he said. The U.S. Bureau of Transportation Statistics reported today that Canadian surface exports to the U.S. were 3.3% lower in May than in April, while imports climbed 4.7%. It is the first time since imports have contracted since December 2007, suggesting a contracting Canadian trade surplus. Total Canada-U.S. surface trade was reported at US$48.939 billion, up 0.2% in May and 10.5% year-over-year. Canada Mortgage and Housing Corporation announced Thursday that it is expanding its Canada Mortgage Bonds (CMB) program to include a CMB with a 10-year maturity. In a statement issued late Thursday afternoon, CMHC said the introduction of a 10-year CMB will allow the program to attract a broader pool of investors. Meanwhile, a global cost of living survey from Mercer ranked Toronto as the 54th most expensive place to live, the costliest of all Canadian cities. Vancouver moved up into the 64th spot from 89, Calgary moved to 66 from 92 and Montreal jumped to the 72nd spot from 98th last year. Moscow ranked as the most expensive city for expatriates for the second consecutive year. Key overnight releases included record high euro zone inflation along with weaker-than-expected consumer confidence in the UK. According to Eurostat preliminary estimates, euro zone inflation reached a record high of 4.1% as expected in July. The previous record of 4.0% had been set in June. Eurostat also reported that the unemployment rate in the euro zone remained stable at 7.3% in June, unchanged from May's revised reading. Economists had expected no change to May's pre-revised 7.2% rate. The GfK Group released UK consumer sentiment in July and reported that its consumer confidence indicator fell to -39 for the month. Economists had expected a decline to only -37 after the indicator had slipped to -34 in June. By Stephen Huebl, shuebl@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , with contributions from Patrick McGee, pmcgee@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , Steve Stecyk, sstecyk@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , Geoff Matthews, gmatthews@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , Adam Button, abutton@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , Erik Kevin Franco, efranco@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it and Todd Wailoo, twailoo@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Sarah Sussman, ssussman@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News. A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer.