Sep 29: Positive Jobless Claims & GDP Reports – Economic Highlights

We finally have some all around favorable data for the market, with a positive revision for the second quarter GDP growth rate and an unusually strong Jobless Claims report. We even have something resembling positive news out of Europe, with the German parliament approving the expansion of the Euro-zone rescue fund.

We got a better than expected upward revision to the second quarter GDP growth rate – from 1% to 1.3%. This is the third and last look at the second quarter GDP growth rate, which was revised down to 1% from 1.3% the last time around. Notwithstanding this back and forth in the headline growth rate, the report’s internals have improved in each iteration.

The most reassuring part of the GDP report, if you can call anything positive in an economy that is growing at a 1.3% pace, is the trend in consumer spending. The growth rate in consumer spending was revised upwards to 0.7% from 0.4% the last time around.

Please don’t forget that consumption growth was originally reported at the almost flat 0.1% rate in the first look at the second quarter GDP. Consumer spending accounts for more than two thirds of the economy. So positive revision to this key element trumps all the other moving pieces. This shows that the economy had a lot more momentum on the consumption side than was originally estimated, which bodes well for the growth momentum in the current quarter.

We know that for consumer spending to pick up, the labor market has got to start showing some vigor. And we saw plenty of reasons to be hopeful on that count from this morning’s weekly Jobless Claims numbers. Weekly Jobless Claims dropped significantly more than expected last week to get below the all-important 400K level for the first time in a while. The 37K drop in claims last week takes the weekly claims level to 391K from 328K. To put it context, the current weekly claims level is the lowest since early April.

We had started seeing a stalling in the improving trend in this key series over the last two months, after a steady downtrend in the second quarter. If today’s number is a sign of things to come, something that can never be taken for granted, then it would indicate a material shift in the economic landscape. An improving labor market and positive evidence of resilient consumer spending will go some way reducing recessionary odds.

In corporate news, we have negative pre-announcement from Advanced Micro Devices (AMD) and a positive earnings surprise from Mosaic (MOS), the fertilizer company. And Nokia (NOK) is reportedly planning further job cuts to steady its cost base in a fast-changing global handset market.