U.S. Q2 GDP Data Better than Expected Thanks to Increased Government Spending

by: TradingHelpDesk

Thanks in no small part to increased government spending US Q2 GDP data has been revised for the better. The economy is now reported to have shrunk by only 0.7% in the 3 months to end of June 2009. Last month the US Commerce Department estimated a 1.0% contraction.

Some three months after Q2 closed, commentators are now awaiting preliminary Q3 data and the consensus suggests a return to growth for the US economy is highly probable. What is less certain is the rate and sustainability of the recovery as ongoing economic data remains mixed and can still fall short of expectations as this week’s news again proved.

Manufacturing data from the Institute of Supply Management (Chicago) suggested output in September contracted with the index falling to 46.1 from 50.0 in the previous month whilst jobs data from ADP employer services estimated 254,000 private sector jobs were cut last month noticeably more than the 210,000 in losses analysts predicted.

Consumer confidence data also disappointed. The Conference Board, an industry group said its consumer confidence index dropped to 53.1 in September, relative to August’s 54.5. Markets expected an improvement to 57.0. US consumers continued to be particularly despondent about the likelihood of securing new employment.

On a more positive note house prices seem to have stabilised and have risen modestly for 3 consecutive months in most regions.

The week’s generally poor data encouraged equity investors to bank profits and reduce exposure to risky assets over the week but despite the stall in the recent bull market, US equity markets still closed the month and Q3 with the strongest quarterly performance in 11 years.

One of the primary drivers of recent risk appetite has been the prediction that the Fed will keep interest rates at highly accommodative levels for some months yet and probably deep into 2010. The Atlanta Fed President, Dennis Lockhart, re-affirmed this consensus on Wednesday citing the need for more evidence of a sustainable economic recovery before rates could be tightened.