Consumers, businesses lift U.S. economic growth in second-quarter
Gross domestic product increased at a 2.6 percent annual rate in the April-June period, which included a boost from trade, the Commerce Department said in its advance estimate on Friday.
Growth for the first quarter was revised down to a 1.2 percent rate from the previously reported 1.4 percent pace. (…)
The economy grew 1.9 percent in the first half of 2017, making it unlikely that GDP would top 2.5 percent for the full year. (…)
Consumer spending, which makes up more than two-thirds of the U.S. economy, grew at a 2.8 percent rate. That was an acceleration from the 1.9 percent pace logged in the first quarter.
Business spending on equipment rose at an 8.2 percent pace in the second quarter, the fastest since the third quarter of 2015. It was the third straight quarterly increase. (…)
U.S. Durable Goods Orders Jump; Aircraft Orders Soar
New orders for durable goods strengthened 6.5% (16.1% y/y) during June following a 0.1% May slip, revised from -1.1%. A 2.8% increase in orders had been expected in the Action Economics Forecast Survey.
The rise in orders reflected strength in bookings for nondefense aircraft & parts which more than doubled m/m. It lifted nondefense capital goods orders by 21.0% (38.4% y/y) following declines during the prior two months. Less aircraft, nondefense capital goods orders eased 0.1% (+5.6% y/y) following a 0.7% improvement. A 19.0 rise (36.1% y/y) in transportation sector orders also reflected a 0.6% decline (+3.2% y/y) in motor vehicle & parts orders.
Outside of the transportation sector, durable goods orders improved 0.2%. That lifted y/y growth to 6.8%, up from the declining trend in place during 2015 and 2016. Fabricated metals orders rose 0.7% (10.4% y/y) while primary metals orders ticked 0.1% higher (11.7% y/y). Machinery orders gained 0.2% (10.5% y/y) following a 2.3% jump, but electrical equipment orders fell 1.7% (+2.1% y/y). Orders for computers & electronic products slipped 0.3% (+2.3% y/y) for the second straight month as orders for computers & related products eased 0.2% (+0.5% y/y), the third decline in the last four months. Communications equipment orders strengthened 1.6% (-3.7% y/y).
- U.S. exporters are riding higher on a weaker dollar. Companies reporting on second-quarter earnings say they are benefiting from growing demand for goods and services by foreign buyers, the WSJ’s Ben Eisen reports, along with expectations for faster global growth with continued low inflation.
Forecast: July U.S. LV Sales Fall Behind Year-Ago
A WardsAuto forecast calls for U.S. light-vehicle sales to reach a 16.9 million-unit seasonally adjusted annual rate in July, following June’s 16.4 million SAAR and resulting in a 5-month streak of sub-17 million figures. July’s SAAR would be significantly lower than the 17.8 million recorded in same-month 2016. The report is calling for 1.42 million light vehicles to be delivered over 25 selling days in July.
Canada’s economic growth blows past forecasts in May
The 0.6 per cent gain exceeded economists’ forecasts for 0.2 per cent, while April was unrevised at 0.2 per cent.
EARNINGS WATCH
As of end of day July 26 per TR:
- 239 reports, 74% beat rate, +6.6% surprise factor.
- Blended Q2: EPS: +10.7%, revenues +4.9%.
- Q3E: +7.5%. Q4: +12.5%.
- Trailing EPS: $125.29.
Amazon’s Expansion Takes Toll Amazon said quarterly profit fell 77% even as sales jumped, a sign of the high cost of its increasing dominance of retail.
Sales for the June quarter jumped 25% to $38 billion, satisfying Wall Street’s expectations of consistent double-digit growth. But Amazon’s bottom line took a hit, with operating income sliding 51% to $628 million and missing analysts’ $1 billion target.
(…) Amazon has claimed more than 40 cents out of every dollar spent online over the past year, according to receipt tracker Slice Intelligence, which has an online shopping panel of more than 5 million. Wal-Mart Stores Inc., in comparison, claimed about 1.7% of online spending over the same period. Amazon is now the second-largest apparel seller behind Wal-Mart after taking market share from Target Corp. and several department stores, according to a research note published by Morgan Stanley in April. (…)
Amazon said it will continue to spend heavily on its growth, signaling a period of lower profit. That is particularly the case in the third quarter, Mr. Olsavsky said, because Amazon bulks up on warehouse staff and delivery capacity ahead of the all-important holiday season. Amazon said its operating income could swing to a loss in the next quarter.
One of the bigger costs for the quarter will come from hiring new employees, part of its pledge to hire 130,000 U.S. workers through mid-2018. The company said on Wednesday it plans to host a giant job fair next week to hire for its 50,000 current U.S. warehouse openings. Amazon said Thursday that its global workforce rose by more than 31,000 in the second quarter to 382,400. (…)
Shipping expenses rose 36% and fulfillment costs jumped 41%, measures that reflect both Amazon’s growing share of the retail market and its drive to control its own logistics and shipping operations. 9…)
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Amazon Enlists Researchers to Build Box-Packing Robots Teams competing in Amazon’s third-annual contest tackle a problem that has kept companies from automating warehouses entirely.
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United Parcel Service Inc. expects retailers to get behind higher shipping prices this fall, and the package carrier’s latest results suggest why UPS is so confident. Revenue in the company’s U.S. domestic business picked up faster than even the strong growth in parcel volumes, the WSJ’s Paul Ziobro reports, signaling UPS is already getting paid more for the extra packages it delivers.
Apple in Awkward Spot After Trump’s Factories Remark Pressed by President Trump, Apple suddenly faces new pressure to build factories in the U.S., something it hasn’t done for years and has shown no signs of wanting to do.
(…) Supply-chain experts and analysts say the prospect of Apple building one plant in the U.S.—much less three—is highly unlikely. Apple has built a sophisticated supply chain in China because that is where component suppliers are located, and manufacturing workers are abundant there. Shipping iPhone or iPad materials to the U.S. for production would cut into Apple’s profit margins, observers say. (…)
‘Skinny’ Repeal of Obamacare Fails The Republican effort to dismantle the Affordable Care Act collapsed early Friday when a slimmed-down Senate measure to pare back selected pieces of the 2010 health-care law failed, undermining the GOP leaders’ efforts to deliver on a longtime campaign promise.
(…) But it’s not clear that any bill can move forward fast enough to affect the markets for next year, as insurers must file rates by mid-August and make final decisions about participation by late September. (…)
However, many companies have said that even if Congress never formally repeals the coverage mandate, they fear the Trump administration won’t strongly enforce it—or consumers will ignore it, figuring that it will likely be toothless.
President Donald Trump likely added to the industry’s alarm with a Friday-morning tweet in which he wrote: “As I said from the beginning, let ObamaCare implode, then deal. Watch!” (…)
The company hasn’t made a final decision, but it would “strongly consider not participating” in the exchanges without the cost-sharing payments and enforcement of the mandate, he said. “It just really begs the question, is this marketplace sustainable.” Independence has asked for a rate increase of around 8.5% on average for next year for its Pennsylvania marketplace plans, and the loss of the cost-sharing payments would add about 4.5 percentage points to that, while lack of enforcement of the mandate would add another 17 percentage points, he said. (…)
Anthem, which has already disclosed plans to leave three of the 14 state exchanges where it offers plans, also said that if the cost-sharing payments are killed, it will need to seek rate increases of around 18% to 20% on exchange plans. The insurer said those increases would come on top of significant hikes it is already requesting, which it said were 20% or more. (…)
In some rate filings that have already become public, insurers offered different estimates. Blue Cross and Blue Shield of North Carolina said that of its 22.9% proposed increase for 2018, 14.1 percentage points were from assumed loss of the cost-sharing payments. BlueCross BlueShield of Tennessee said that of its 21% boost, about 14 percentage points were tied to the lack of cost-sharing payments and 7 percentage points to the loss of enforcement of the mandate. (…)
Why is this important?
- We are talking of people’s health here.
- Health-related costs have soared nearly 25% since 2013, the year the ACA went into effect, acting as a significant drag on total consumer spending and retail sales. Meridian Macro Research calculates that health-related expenditures are now 15% higher than expenditures on housing and utilities.
- Health care is now 17.1% of total consumer spending, up from 16.2% in 2013, 15% in 2007 and 13.5% in 2000.
GOP Lawmakers Outline Tax Plan Top congressional Republicans and the Trump administration abandoned a controversial House GOP plan to tax imports and exempt exports from taxes, as they announced tax policy principles that resolved few other crucial issues.
(…) The statement emphasized a common goal of reducing individual and corporate rates and individual tax rates “as much as possible.” It also called for faster writeoffs for capital expenses, an idea meant to promote investment, though it stopped short of a House Republican proposal for immediate writeoffs. (…)
“This is a very public declaration that the key elements of the [House] blueprint are dead,” said Harold Hancock, a former GOP Ways and Means tax aide now at McGuireWoods LLP. “This has become a broaden-the-base, lower-the-rate exercise, and [will] not create a whole new tax regime for the United States.” (…)