#second-quarter

Avaya financials reveal big increases in cloud adoption

Above: Jim Chirico. Photo courtesy Avaya. Avaya, a cloud and communications company specialising in internet based connectivity reported revenues of US$738 million in its second-quarter financial results. This represented an increase of eight percent year over year with the company’s OneCloud product increasing by 31 percent to US$344 million. Avaya’s cloud, alliance partner and subscription…

WASHINGTON — The U.S. economy slowed sharply in the April-June quarter even as consumers stepped up their spending.

The gross domestic product, the economy’s total output of goods and services, grew at a 2.1% annual rate last quarter, down from a 3.1% gain in the first quarter, the Commerce Department estimated Friday.

But consumer spending, which accounts for 70% of economic activity, accelerated to growth at a sizzling 4.3% rate after a lackluster 1.1% annual gain in the January-March quarter. The resurgent strength in household spending was offset by a widening of the trade deficit and slower business inventory rebuilding. Those two factors combined pared annual GDP last quarter by 1.5 percentage points.

Economists also noted that business capital investment, which has been strong for the past two years, fell at a 0.6% annual rate in the April-June quarter, the first decline in three years. That weakness likely reflects, at least in part, a reluctance by businesses to commit to new projects because of uncertainty surrounding President Donald Trump’s confidence-shaking trade war with China.

Indeed, most analysts think the U.S. economy could slow through the rest of the year, reflecting both global economic weakness and the trade war between the world’s two largest economies.

That is one key reason why the Federal Reserve is widely expected to cut interest rates next week for the first time in more decade and two signal that it may further ease credit in the months ahead.

On Friday, besides issuing its first of three estimates of growth in the April-June quarter, the government reported that the economy grew more slowly in 2018 than it had previously estimated. As part of its annual revisions to GDP, the government downgraded its estimate for 2018 growth from 3% to 2.5%. President Donald Trump had frequently boasted of the 3% growth figure as evidence that his policies have invigorated the economy.

For the January-March quarter, a narrower trade deficit and a surge in business restocking had contributed 1.3 percentage points to the 3.1% annual gain. But economists had cautioned that this strength was likely to be temporary.

For the second half of this year, economists say they think GDP will grow at a modest annual rate of 2% or slightly lower, leading to growth for the full year of around 2.5%. That would be down from 2018 growth of 2.9 percent, which had been the best showing since a similar rise in 2015.

That would be a disappointment to the Trump administration which is forecasting that Trump’s economic policies of tax cuts, deregulation and tougher trade enforcement will lift the U.S. economy to sustained gains in coming years of 3% or better. Trump often cites the economy’s performance at his campaign rallies, saying his policies have lifted the economy out of a decade-long slowdown he blames on the wrongheaded policies pursued by the Obama administration.

While economists see the tax cut Trump pushed through Congress in late 2017 as a key factor boosting growth last year, they expect the impact of those cuts will fade this year. Most think it would leave the economy growing close to the annual average of 2.3 percent that has prevailed since this expansion began in June 2009.

The recovery this month became the longest in U.S. history, one month longer than the 10-year expansion of the 1990s.

The 2.3% average annual growth rate is the weakest for any recovery in the post-World War II period, a fact that Trump repeatedly noted during his 2016 campaign, blaming that weakness on failed policies of Barack Obama.

Private economists, however, argue that the slowdown reflected the severity of the 2007-2009 recession, the worst since the Great Depression of the 1930s as well as long-term trends such as the retirements of the baby boomers and slowing productivity.

Mark Zandi, chief economist at Moody’s Analytics, said he is looking for annual GDP growth this year of 2.5%, down from 2.9% last year, slowing even further to 1.7% in 2020.

“The benefits of the 2017 tax cuts are largely played out,” Zandi said. “I think going forward that recession risks are high especially if something major goes off the rails such as a resurgence of the trade war or a bad exit by Britain from the European Union.”

By MARTIN CRUTSINGER – July 26. 2019

U.S. wage growth brakes in second-quarter; consumer sentiment slips

A worker gestures at the General Motors Assembly Plant in Arlington, Texas June 9, 2015.

Reuters/Mike Stone

WASHINGTON U.S. labor costs in the second quarter recorded their smallest increase in 33 years as workers earned less in commissions and bonuses, in what appeared to be a temporary wage growth setback against the backdrop of diminishing labor market slack.

The surprisingly smaller rise reported by the Labor Department on Friday did little to temper expectations that the Federal Reserve is set to raise interest rates later this year. The job market is fast approaching full employment.

“Labor market fundamentals are improving, job openings are at record highs, and slack on a steady downtrend. This is precisely how the Fed will interpret this report, even if the numbers here are atrocious,” said Eric Green, chief economist at TD Securities in New York.

The Employment Cost Index, the broadest measure of labor costs, edged up 0.2 percent in the second quarter, the Labor Department said. That was the smallest gain since the series started in the second quarter of 1982 and followed a 0.7 percent rise in the first quarter.

The weakness in compensation was concentrated in sales, information and wholesale trade, occupations where workers are likely to receive incentive pay. Commissions and bonuses helped lift worker compensation at the start of the year.

Excluding commissions, compensation was up 0.6 percent in both the first and second quarters, according to TD Securities.

Economists had forecast the employment cost index, widely viewed by policymakers and economists as one of the better measures of labor market slack, rising 0.6 percent in the second quarter.

At 5.3 percent, the unemployment rate is close to the 5.0 percent to 5.2 percent range that most Fed officials consider consistent with full employment.

That tightening of the labor market, which is expected to eventually translate into faster wage growth, has helped to hold consumer sentiment at lofty levels over the past eight months.

SENTIMENT STILL HIGH

In a separate report, the University of Michigan’s consumer sentiment index slipped to 93.1 in July from 96.1 in June. Still, the index was up 13.8 percent compared to July of last year.

Households expected their incomes to rise over the next two years, in sharp contrast with another confidence survey published earlier this week that had suggested a deterioration in consumers’ perceptions of the labor market.

“On balance, the Michigan survey suggests that consumer sentiment remains broadly stable,” said Jesse Hurwitz, an economist at Barclays in New York.

Stocks on Wall Street were marginally higher, while the dollar fell against a basket of currencies. Prices for longer-dated U.S. Treasury debt rose.

In the second quarter, wages and salaries, which account for 70 percent of employment costs, rose 0.2 percent. That was also the smallest increase on record and followed a 0.7 percent increase in the first quarter.

Private sector compensation failed to rise for the first time on record. Compensation in the services sector nudged up 0.1 percent in the second quarter after rising 0.6 percent in the prior period.

Compensation in the goods producing sector rose a solid 0.7 percent after increasing 0.5 percent in the first quarter.

“If we took this as a sign of things to come in the labor market, we might have to rethink the timing and pace of Fed rate hikes. However, this report seems to be out of tune with other indicators and anecdotal evidence,” said John Ryding, chief economist at RDQ Economics in New York. 

In the 12 months through June, labor costs rose 2.0 percent, the smallest 12-month increase since last year and a further slip below the 3 percent threshold that economists say is needed to bring inflation closer to the Fed’s 2 percent medium-term target.

Benefits rose 0.1 percent in the second quarter, but economists said that was mostly because of changes to the definition of retirement benefits.

A third report from MNI Chicago showed factory activity in the Midwest jumped to a six-month high in July. The Chicago Business Barometer rose to 54.7, the first gain since April, from June’s reading of 49.4. A reading above 50 indicates expansion in the region’s manufacturing sector.

Both production and new orders expanded at the fastest pace since the beginning of the year. A special survey question on wage growth showed that 40 percent of respondents said wages had grown by 1 percent to 2 percent over the past year.

About 19 percent of respondents reported wages were up 3 percent to 4 percent and nearly a quarter said that wage growth was unchanged over the year.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Second-quarter GDP seen rebounding on consumer spending, housing

A customer shops at the Wal-Mart Neighborhood Market in Bentonville, Arkansas June 4, 2015. Wal-Mart will hold its annual meeting June 5, 2015.

Reuters/Rick Wilking

WASHINGTON U.S. economic growth likely accelerated in the second quarter as a pick-up in consumer spending and housing offset the drag from trade and the energy sector, suggesting a steady momentum that could bring the Federal Reserve closer to hiking interest rates this year.

The government is expected to report on Thursday that gross domestic product increased at a 2.6 percent annual rate, according to a Reuters survey of economists.

There is, however, a lot of uncertainty regarding this estimate after the government took steps to refine the seasonal adjustment for some components of GDP, which economists said left residual seasonality in the data. This means first-quarter GDP, previously reported to have shrunk at a 0.2 percent pace, could be revised higher because of new source data.

“We expect a decent bounce back, which will suggest that the economy’s struggles at the start of the year were temporary,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “GDP growth north of 2.5 percent is sufficient to reduce the slack in the broader economy.”

The Commerce Department will publish its GDP report at 8:30 a.m.

The Fed on Wednesday described the economy as expanding “moderately” while upgrading its view of the labor market and saying housing had shown “additional” improvement. The Fed’s assessment left the door open for a possible hike in interest rates in September, which would be the first rise since 2006.

CONSUMER BOOST

Growth in the second quarter was probably boosted by consumer spending as households used some of the windfall from cheaper gasoline in late 2014 and early this year to go shopping. The strengthening labor market also likely encouraged consumers to loosen their purse strings.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, is forecast to have grown around a 2.9 percent rate from a 2.1 percent pace in the first quarter.

“The upshift in growth momentum should be sustained during the second half of the year,” said Millan Mulraine, deputy chief economist at TD Securities in New York. “This will provide the necessary cover for the Fed to raise rates later this year, though the pace of tightening will be ‘gradual.'”

A firming housing market is also expected to have supported the economy in the second quarter, as did government spending.

However, the energy sector probably continued to weigh on growth as it struggles with the lingering effects of deep spending by oil-field companies like Schlumberger (SLB.N) and Halliburton (HAL.N) in the aftermath of a more than 60 percent plunge in crude oil prices last year.

But there are signs that the energy spending rout might be nearing an end. Data last Friday showed U.S. energy firms added 21 oil rigs last week, marking the third increase over the past 33 weeks.

Schlumberger said last week it believed the North American rig count may be bottoming and that a slow rise in both land drilling and completion activity could occur in the second half of the year.

A strong dollar likely continued to hobble exports in the second quarter, while sucking in imports to meet a pickup in domestic demand. That is expected to have resulted in a trade deficit that subtracted from GDP growth. Trade chopped off 1.89 percentage points from GDP growth in the first quarter.

Inventory accumulation is expected to have slowed after the first quarter’s brisk pace. While that means inventories will subtract from second-quarter GDP growth, that will be good news for the remainder of the year.

With oil prices having risen during the second-quarter and consumer spending having picked up, inflation pressures likely accelerated. The personal consumption expenditures price index is forecast to have rebounded at a 2.0 percent rate after falling by the same margin in the first quarter.

Excluding food and energy, prices likely rose at a 1.6 percent pace.

(Reporting by Lucia Mutikani; Editing by Leslie Adler)

UPS second-quarter profit tops estimates; sees sluggish U.S. economy

Package delivery company UPS (UPS.N) on Tuesday reported a better-than-expected second-quarter profit on improved margins, and said U.S. economic growth was being hampered by a strong dollar and an expected interest rate hike.

Shares in Atlanta-based United Parcel Service Inc rose more than 2 percent.

“The continued strength of the U.S. dollar and I think this impending rate hike by the Fed appears to be holding back some U.S. growth,” Chief Executive Officer David Abney said on a conference call.

Abney said UPS remained “a little bit cautious about the U.S. economy.”

Like main rival FedEx Corp (FDX.N), UPS is often seen as a bellwether of U.S. economic health. An interest rate hike is widely expected this year.

UPS revenue fell 1.2 percent from a year ago to about $14.1 billion in the quarter. UPS said the strong U.S. dollar and lower fuel surcharges hurt growth. When reporting quarterly results in June, Memphis-based FedEx said lower fuel surcharges had cut into revenue.

UPS reported second-quarter net income of $1.23 billion, or $1.35 per share, up nearly 10 percent from $1.12 billion, or $1.21, a year earlier.

Analysts, on average, expected earnings per share of $1.26.

The company forecast full-year 2015 earnings per share in a range from $5.05 to $5.30, unchanged from April, though the company added that it would be at the high end of its outlook.

Analysts, on average, expect full-year earnings per share of $5.19.

Despite the second-quarter earnings beat, analysts and investors were waiting to see how the company performs in the fourth-quarter holiday season. In 2014 the company overspent for package volumes that failed to materialize after underestimating demand in 2013, when hundreds of thousands of packages were stranded on Christmas Eve.

“UPS must still focus on overcoming the previous year’s problems in peak shipping to hit their (earnings) targets for the year,” Cowen & Co analyst Helane Becker wrote in a client note.

Volume growth and price increases boosted margins at its international package business.

The strong dollar drove down revenue for its higher-margin international package business by more than 6 percent, while revenue in the U.S. domestic package market, by far its largest business, rose 1.6 percent.

In early trading on the New York Stock Exchange, UPS shares were up 3.5 percent at $98.43.

(Reporting by Nick Carey in Chicago; Editing by Jeffrey Benkoe)

An airplane is seen on the tarmac at the United Parcel Service (UPS) Regional Air Hub in Rockford, Illinois, December 9, 2014.

Reuters/Jim Young