America’s economy has now posted two successive quarters of 3% annualised growth, for the first time in three years.
The Bureau of Economic Analysis says that America’s growth in the last quarter came from “personal consumption expenditures (PCE), private inventory investment, nonresidential fixed investment, exports, and federal government spending”.
But “residential fixed investment and state and local government spending” both had a negative impact on growth.
The US dollar is strengthening, as Wall Street traders calculate that this solid growth raises the chances of an interest rate rise in December:
US GDP: Snap reaction
Economists are impressed by America’s economic performance over the last quarter, especially given the disruption caused by the hurricane season.
For example, here’s Mohamed El-Erian, chief economic advisor at financial services giant Allianz:
Justin Wolfers, professor at the University of Michigan, says America’s long slow expansion has continued. He tweets:
Jason Furman, who chaired President Obama’s Council of Economic Advisers, has the bigger picture:
US GDP: The key details
Today’s GDP report shows that consumer spending across America slowed in the last quarter, to a rate of 2.4% from 3.3% in the second quarter. That is partly due to Hurricanes Harvey and Irma – so the underlying picture is probably stronger.
Businesses boosted their inventories, suggesting they expect strong demand in the coming months. This inventory investment added 0.73 percentage points to third-quarter GDP growth.
Business investment rose during the July-September quarter, at a rate of 3.9%, led by spending on new equipment.
Exports also rose, by 2.3%, while imports fell by 0.8% — that narrowed the trade deficit, and made a positive contribution to growth.
US GDP: Growth beats forecasts!
Breaking: America’s economy expanded at an annualised rate of 3.0% in the third quarter of 2017.
That beats Wall Street expectations, and is another quarter of solid growth.
That’s equivalent to a quarterly growth rate of 0.75%, faster than the 0.4% growth which the UK managed during the last quarter.
More to follow!
The Wall Street Journal has compiled a helpful list of things to watch for in today’s US GDP report, due in 15 minutes.
- Did the economy bounce back from the devastation caused by the hurricane season? Hurricanes Harvey and Irma probably slowed America’s growth during the quarter
- Did consumer spending remain robust? The WSJ suspects it may have slowed, as “Americans generally don’t go out shopping or dining during hurricanes”.
- Did businesses keep investing? A strong reading would suggest firms are confident about their future prospects
- Are US exports growing? The world economy seems to be strengthening, so US firms should be taking advantage and selling more overseas.
Analysts at ING predict a strong US growth report:
US GDP: A preamble
Excitement is building on Wall Street as traders wait nervously to learn how America’s economy fared in the third quarter of 2017.
As explained in the introduction, economists predict that US GDP expanded at an annualised pace of 2.5% in July-September (the equivalent of growing by 0.6% during the quarter).
That would be a small slowdown in growth after a strong second quarter, but still a fairly solid result.
The data could help determine whether US interest rates are raised again this year.
Craig Erlam, analyst at City firm OANDA, explains:
The economy performed very well in the second quarter and another strong number is expected today, which will only increase the likelihood that the Fed raises interest rates at the December meeting.
While there’s no room for manoeuvre on this for the December meeting – a rate hike is fully priced in – there’s plenty of room next year with markets severely under-pricing the three hikes the Fed has projected for 2018.
JC Penney issues profits warning
Newsflash: US department store chain J. C. Penney has issued a profits warning – a timely example of how traditional retailers are struggling in the face of Amazon.
The company, which runs more than 1,000 stores in shopping malls across America, has slashed its earnings forecast for 2017.
J. C.Penney revealed that it had been forced to slash prices, particularly for women’s clothes, to stimulate sales in September and October. That has taken a big slice out of its company’s profitability.
Shares have plunged by 15% in pre-market trading. Rival retailers Macy’s and Kohl’s are also dropping, on fears that the US retail sector is slowing (unless you’re Amazon, of course…).
Newsflash from Moscow: The Bank of Russia has cut interest rates, by a quarter-point, to 8.25%.
Russian interest rates have been cut steadily this year, having been hiked to an eye-watering 11% in 2015 as central bankers tried to get inflation under control and support the rouble.
Last night’s financial results are calming worries that technology companies had become dangerously overvalued.
The rally in the US stock markets this year has been partly driven by the FANG stocks (Facebook, Amazon, Netflix and Google). Those stocks had fallen in recent days, on fears that investors had got carried away.
But the news that Amazon and Alphabet both posted such strong revenue and profit growth suggests that Wall Street was right all along, and hadn’t overvalued the tech sector.
Thomas Fitzgerald, associate fund manager at EdenTree Investment Management, says:
“Alphabet reported an impressive set of results on Thursday evening, beating consensus expectations on every measure and delivering top-line growth in excess of 20% for the sixth straight quarter. The results were driven by strength in both core mobile and desktop search, ‘phenomenal growth’ from YouTube and further momentum in cloud services.
“Overall, the results reinforce our positive view on the company, as it continually adapts to a rapidly evolving computing environment, while leveraging advanced A.I. and machine learning capabilities to sustain a high level of growth.
Jeff Bezos might wrestle the title of the world’s richest person back from Bill Gates today, depending how Amazon and Microsoft’s shares perform today.
The 8.5% surge in Amazon’s shares in after-hours trading swelled Bezos’s fortune by over $6bn. That could be enough to put Bezos top of the pile.
Gates ended Thursday with a net worth of $87.9 billion, about $4.5 billion ahead of Bezos. Gates has been the world’s richest person since 2013, though he briefly slipped behind Bezos during intraday trading on July 27.
Gates ended that day on top.
The race is only close, though, because Gates has given away tens of billions of dollars over the years – including a $4.6bn donation in August.
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In other tech-related news…Britain’s competition watchdog is getting its teeth into hotel booking web sites.
The Competition and Markets Authority fears that customers are being unfairly pressured into making a booking, by warnings about how many (or few) rooms are left or how long a price might be available for.
Here’s the full story:
Woosh! European stock markets have hit a five-month high this morning as last night’s US tech results create an upbeat mood.
Technology stocks, and consumer-focused companies, are leading the rally this morning.
Stocks are also benefitting from the drop in the euro yesterday, after the European Central Bank extended its bond-buying stimulus scheme by another nine months (at least).
Alphabet’s results: What the experts say
Alphabet’s results are also being cheered by technology analysts.
Alphabet Inc. beat projections for third-quarter sales and earnings after a surge in Google ad volume helped the web-search giant shrug off concerns about regulatory scrutiny and an expensive foray into hardware.
Sales for the quarter rose to $22.27 billion and profit was $9.57 a share, the company said. Analysts on average estimated sales of $22 billion on earnings of $8.34 a share. Executives lauded “tremendous results” in mobile search ads. Yet the company cautioned investors the biggest costs that come with those ads — fees paid to distribution partners — will continue to rise, along with expenses from Google’s foray into devices and holiday-season marketing.
“We had a terrific quarter, with revenues up 24% year on year, reflecting strength across Google and Other Bets,” Chief Financial Officer Ruth Porat said in the statement. It’s the first time in an earnings release that the CFO praised Alphabet’s non-Google units, in self-driving cars and other experimental fields, which sharply curbed their costs during the quarter.
James Cordwell, an analyst at Atlantic Equities, says:
TAC [ Traffic acquisition costs] is surging, but the trade-off between growth and margin is a good one, with overall gross profit dollars still growing in excess of 20 percent.
Over on Quartz, Mike Murphy points out that Google provided the bulk of Alphabet’s revenues
Time is a flat circle.
Alphabet announced its third-quarter earnings today (Oct. 26), and yet again, it brought in a ton of cash, almost entirely from Google’s advertising business.
The company generated $27.8 billion in revenue, up 24% from the same quarter last year, making this Alphabet’s highest-revenue quarter ever. (The previous record was $26.06 billion in the fourth quarter of 2016.) Roughly $24.1 billion of that revenue, or about 87%, came from Google’s ad sales.
Amazon’s results: What the experts say
Here’s some reaction to Amazon’s forecast-smashing results.
Amazon grew quarterly sales by more than a third, helping the company turn a profit even as it spends heavily to disrupt industries ranging from groceries to logistics and television shows.
Shares jumped more than 8 per cent to $1,040 a share in extended trading, as the company led by billionaire Jeff Bezos reported that sales jumped 34 per cent to $43.7bn in the three months to the end of September.
This handily topped Amazon’s own forecast and consensus estimates for $42.1bn, and outpaced growth of 25 per cent last quarter.
Wedbush Securities analyst Michael Pachter:
“This company has finally gotten itself to the point where it can sustain its spending growth and still leave some crumbs for shareholders.”
Benchmark Co analyst Daniel Kurnos:
“They are firing on all cylinders. The machine is churning,”
The BBC’s technology correspondent, Rory Cellan-Jones, is also impressed:
Amazon, Alphabet, Microsoft and Intel collectively hauled in roughly $2.2bn more profit and $19bn more revenue than in the same quarter a year ago.
That’s according to Marketwatch’s Jeremy Owens, who adds:
Alphabet had perhaps the most astounding beat of the afternoon, as profit rose $1.12 billion and revenue $9.5 billion from a year before. The Google parent company reported third-quarter net income of $6.73 billion, or $9.57 a share, on revenue of $27.8 billion.
That performance destroyed forecasts, as analysts on average expected Alphabet to report earnings of $8.31 a share on revenue of $26.9 billion.
Over in Japan, the Nikkei stock index has surged by over 1% to a fresh 21-year high following last night’s blisteringly good results from Alphabet, Amazon et al.
Mutsumi Kagawa, chief global strategist at Rakuten Securities, says investors are in an optimistic mood:
“Corporate earnings are rising to record levels in the world. And the IMF just upgraded its economic forecast for all of U.S., China, Europe and Japan.
Amazon, Alphabet and Microsoft cheer investors with stellar results
World stock markets are upbeat this morning after the world’s largest technology companies smashed forecasts last night.
Amazon, Alphabet (Google) and Microsoft all outperformed Wall Street expectations with their latest financial results, sparking a rally in Asia — and potentially sending US stocks to fresh record highs later today.
Amazon posted a 34% (!) rise in revenues during the last quarter, to $43.7bn, partly due to its recent acquisition of Whole Foods. That beat forecasts of $42.1bn.
And despite investing heavily, the online retail giant also posted net earnings of $256m or 52 cents per share — compared to forecasts of just 3 cents.
The results sent Amazon’s shares soaring by 7% in after-hours trading, popping over the $1,000 mark.
Alphabet’s shares are also poised to vault over the $1,000 mark when trading begins in New York later today. Its earnings spiked by 32% during the quarter, to $9.57 a share, beating forecasts of $8.35.
Revenues beat forecasts too – rising to $27.77bn, ahead of forecasts of $27.2bn.
Ad prices went down more than expected during the quarter, and traffic costs were higher than forecast — but revenue was boosted by a higher-than-predicted surge in the volume of clicks on Google ads across the world, especially in Asia.
Microsoft, too, had a good quarter, partly to strong demand for its cloud services operation. Revenue from the Office 365 cloud productivity suite jumped 42% year-on-year, helping to drive total revenue to $24.5bn, compared to $23.56bn expected.
That drove Microsoft’s share to an all-time high in after-hours trading.
Microchip maker Intel and social media network Twitter also beat forecasts yesterday, suggesting that the tech boom isn’t fading.
Alphabet, Microsoft and Amazon are all among the world’s five largest companies, so these results have cheered investors.
The agenda: US GDP growth report
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
We get a new insight into the health of the world’s largest economy today, when preliminary US GDP figures are released.
Analysts predict that America’s economy grew by around 0.6% during the quarter, giving an annualised growth rate of around 2.5%.
That would be a small decline on the 3.1% recorded in the April-June quarter
A strong reading would bolster confidence in the health of the global economy, but it’s possible that today’s data will be distorted by the hurricane season.
Adam Cole of Royal Bank of Canada predicts that US companies hiked their spending on new equipment and buildings and stocked up on more raw materials, in a sign of confidence.
Look for a sharp inventory swing to contribute a sizeable amount to the sequential change (just over 0.5ppt) while capex investment should also look firm (adding another 0.5ppt, possibly more after this week’s durables release).
Otherwise it’s a fairly quiet day…
Here’s the agenda:
- 8.15am BST: Peter Praet, the ECB’s chief economist, speaks a a conference on financial market policy in Frankfurt.
- 1.30pm BST: US GDP report released.
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