U.S. economy slows; government says recession worse than believed
The U.S. economy slowed in the second quarter as growth rose at an annualized rate of 2.4%. The expansion was supported to a greater degree by business investments and exports than by consumer spending, which continued to play a smaller role in the recovery. For instance, business spending increased 21.9%, while consumer spending rose only 1.6%. In the first quarter, the economy grew by 3.7%.
The U.S. Department of Commerce reported that the recession was deeper, and subsequent recovery slower, than earlier estimated. The government revised downward its earlier estimates of gross domestic product for seven of the 12 quarters of 2007, 2008, and 2009, primarily because consumer spending grew more slowly and homebuilding fell more sharply than previously estimated. The overall depth of the most recent recession surpassed any other since the late 1940s. GDP fell by 4.1% between the fourth quarter of 2007, when the recession officially began, and the second quarter of 2009, when many economists believe it ended. The previous estimate for the overall decline was 3.7%.
Better-than-expected U.S. home prices
Home prices rose in May but were expected to lose momentum with the expiration of federal tax credits.
U.S. labor market slow to improve; consumer confidence falls
The number of Americans filing first-time claims for unemployment insurance fell to 457,000 last week. Claims dropped 11,000, while the number of people receiving unemployment benefits rose. Amid these still-weak job markets and pessimism about business conditions in the coming months, the Conference Board said its Consumer Confidence Index fell to 50.4 in July, the second consecutive monthly decrease.
U.S. global and corporate news
Basel team moves to define capital
International regulators and central bankers participating in the Basel Committee on Banking Supervisions agreed on key aspects of new global standards aimed at constraining risk at the world's largest banks. Details on what counts as capital were ironed out. Limits were placed on the degree to which banks can count assets such as deferred taxes, mortgage serving rights, and minority interest toward minimal capital levels. That limitation will effectively force banks to reinforce their balance sheets with common equity.
Oil producers post impressive results
Higher energy prices and stronger refining markets helped buoy earnings at oil producers in the second quarter. Exxon's earnings jumped 91% as commodity prices rose and refining profits and production surged. Royal Dutch Shell posted a 15% rise as oil and gas production rose 5% and a restructuring aimed at trimming costs was completed early. Chevron's earnings more than tripled as the oil company benefited from increased production and prices as well as a stronger market for refined products. French oil company Total posted a 43% increase in profits on the back of stronger production, higher oil prices, and a stronger dollar.
Sony announced strong quarterly results and a more bullish full-year outlook. The company raised its full-year profit forecast 20%. Meanwhile, Panasonic revised its projection by 70%. Both companies posted first-quarter earnings that exceeded analysts’ estimates.
Merck reported a 50% decline in second-quarter profits as merger-related and restructuring costs offset a near doubling in sales, resulting from its takeover of Schering-Plough. That profit still beat analysts' expectations.
Global economic news
Eurozone's economic prospects improve
European confidence in the economic outlook rose in July to the highest level in more than two years, and German unemployment declined for a thirteenth month as exports sustained a recovery in the region. Growth in Europe's services and manufacturing industries accelerated in July.
U.K. consumer confidence falls
U.K. consumer confidence fell more than forecast in July as the prospect of government spending cuts undermined optimism on economic recovery. An index of sentiment released by the market research firm GfK NOP fell to its lowest level in 11 months.
India's central bank raises rates
India's central bank raised interest rates more than anticipated in a move to quell double-digit inflation.
Japan's recovery still mixed
Japan's factory output slid 1.5% in June from the previous month, and its jobless rate rose to 5.3%, the highest level since November.
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Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; boston.com.
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