By Kasra Kangarloo

WASHINGTON (MNI) – Disappointing economic data released since the
U.S. Commerce Department’s initial report on second quarter economic
activity means the majority of economists predict a downward revision in
the second estimate to be published Friday.

According to a survey of economists by Market News International,
the report is expected to show an annualized 1.4% increase in GDP for
the second quarter, sharply lower than the 2.4% originally reported.

The second GDP report includes two important indicators missing
from the first — preliminary corporate profits for the second quarter
and the June trade balance.

Corporate profits have made positive contributions the last two
quarters, rising $116.9 billion in Q1 and $108.7 billion in Q4, and are
expected to post gains in Q2.

The bulk of the downgrade adjustment in total GDP can be attributed
to the significant increase in the U.S. trade deficit, which rose from
$42 billion in May to $49.9 billion in June. The increase was due to
both a drop in exports ($2.0 billion) and a rise in imports ($5.9
billion).

The initial report showed that the trade deficit deducted 2.78
percentage points from total GDP, the largest deduction since Q3 1982.
The figure for exports added 1.22 percentage points, while the export
figure deducted 4.0 percentage points.

June personal consumption expenditures, also released after the
first report, showed a flat reading for the month, below the market
consensus of 0.1%. This, too, is be expected to put a dent in the
initial GDP figure, as personal consumption contributed 1.15 percentage
points to total Q2 GDP. June construction spending also showed a 1%
decline from the previous month.

The durable goods report released Wednesday showed some positive
revisions for June data, which should offset the negative contribution
from the trade balance. Durable goods orders excluding transportation
were adjusted from a 0.6% decrease to a 0.2% increase, led by a
significant upward revision to capital goods orders nondefense
ex-aircraft.

According to Harm Bandholz, economist at Unicredit, the negative
effects of the higher trade deficit will most likely outweigh the
positive adjustments to durable goods orders. A research note by MF
Global reiterates this point, adding that weaker inventory data will
also contribute to the fall.

–Kasra Kangarloo is a reporter with Need To Know News In Washington

** Market News International Washington Bureau: 202-371-2121 **

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