Economists Raise U.S. Employment Expectations on Strong GDP Data

Analysts at two investment banks have raised their estimates for payrolls and wages in two notes released after the U.S. revised upwards their measurements for second quarter GDP.

The Bureau of Economic Analysis announced on Friday that U.S. Gross Domestic Product rose 4.6% in the second quarter, up from prior estimate of a 4.2% growth in GDP. The report said that export growth, greater private inventory investment, and accelerations in nonresidential fixed investments, helped bolster U.S. growth, while imports accelerated in a symbol of growing domestic demand.

Analysts at two investment banks have raised their estimates for payrolls and wages in two notes released after the U.S. revised upwards their measurements for second quarter GDP.

The Bureau of Economic Analysis announced on Friday that U.S. Gross Domestic Product rose 4.6% in the second quarter, up from prior estimate of a 4.2% growth in GDP. The report said that export growth, greater private inventory investment, and accelerations in nonresidential fixed investments, helped bolster U.S. growth, while imports accelerated in a symbol of growing domestic demand.

The report helped stocks reverse a bearish turn on Thursday, when pessimism that consumer sentiment and private investment were turning sour caused U.S. stocks to fall. However, the BEA’s data is for April through June, while more recent indicators for July and August have suggested greater softness in aggregate demand throughout the country.

Rosy Outlook for U.S. Workers

Merrill Lynch and Nomura released notes on the GDP data, arguing that stronger employment data was likely to come in September after an unusually weak August.

Merrill Lynch wrote that hourly earnings are “likely to continue to increase at a trend 0.2% mom [month over month] rate, which will push the yoy [year over year] rate up to 2.2%.” The growth in wages is likely to come as the national unemployment rate remains steady at 6.1% in September, the economists at the investment bank wrote, adding that they expect positive revisions to prior months’ unemployment data, which “should keep the 3-month moving average for payrolls above 200,000.”

Economists at Nomura Holdings, a Japan-based investment bank, wrote more optimistically that unemployment was likely to fall to 6.0% in September on a “200k increase in private payrolls, with a 10k increase in government jobs, implying that total nonfarm payrolls will gain 210k.” The economists at Nomura said private employee earnings will likely rise by 0.25% month over month in September, indicating “a gradual pick-up in wage inflation.”

Higher Corporate Profits

The BEA also hinted at strong private sector investment in its GDP estimate, which observed 1.42% growth in second-quarter real private inventories as private businesses “increased inventories $84.8 billion in the second quarter, following increases of $35.2 billion in the first quarter and $81.8 billion in the fourth.” The BEA also said real final sales rose 3.2% in the second quarter after a decline of 1.0% in the first quarter, indicating greater economic activity and aggregate demand for goods and services amongst the United States.

Corporate profits rose $164.1 billion in the second quarter, a decline from $201.7 billion in the first quarter that defied aggregate economic contraction. Some analysts suggest declining commodity prices and stagnant wages helped increase corporate profits in the first quarter despite a decline in total sales and demand. Financial corporations saw profits rise $33.3 billion in the second quarter, after seeing a contraction of $86.2 billion in the first quarter.

The BEA also said the current-dollar GDP of the U.S.’s total goods and services output rose 6.8% in the second quarter to $17.382 trillion.