What’s the Story

by CC September 27, 2012 9:13 am • Commentary


Economic growth was much weaker than previously estimated in the second quarter as a drought cut into inventories, setting the platform for an even more sluggish performance in the current quarter against the backdrop of slowing factory activity.

Gross domestic product expanded at a 1.3 percent annual rate, the slowest pace since the third quarter of 2011 and down from last month’s 1.7 percent estimate, the Commerce Department said in its final estimate on Thursday.

Output was also revised down to reflect weaker rates of consumer and business spending than previously estimated. Outlays on residential construction export growth were also not as robust as had been previously estimated.

Economists polled by Reuters had expected second-quarter GDP growth would be unrevised at a 1.7 percent pace. The economy grew at a 2.0 percent pace in the January-March period.

The worst drought in half a century, which gripped large parts of the country in the summer, saw farm inventories dropping $5.3 billion in the second quarter after slipping $1 billion in the first three months of the year.


Orders for durable goods, products designed to last at least three years, fell 13.2% last month to a seasonally adjusted $198.49 billion, the Commerce Department also said.

That was the biggest decrease since January 2009 and the lowest dollar figure for new orders since February 2011. Economists surveyed by Dow Jones Newswires expected a 5.6% drop in August new orders.

Durable-goods orders for July were $228.62 billion, a 3.3% gain from the prior month.

Declining transportation orders led the August numbers lower.

Civilian-aircraft orders, a volatile component of the durable-goods report, collapsed. That was expected. Wrightson ICAP noted that Boeing Co. BA +1.24% orders fell from 260 in July to one last month. “This is a temporary lull, as those orders have picked up again so far in September,” Wrightson ICAP said ahead of the durable-goods report.

While other sectors didn’t fall as much, they still declined.

Motor-vehicle and parts orders dropped 10.9%.

Outside of transportation, August orders slid 1.6%.

Orders for metals, machinery and computers all declined. Electrical-equipment orders rose 3.8%.

Thursday’s report showed that one key barometer of business investment grew in August. Orders for nondefense capital goods excluding aircraft increased by 1.1%, suggesting a small degree of optimism among companies about the economic recovery.

The industrial sector has flashed mixed signals recently, though overall signs point to a slowdown.


The number of Americans filing new claims for jobless benefits fell last week to the lowest level in two months.

Initial claims for state unemployment benefits dropped 26,000 to a seasonally adjusted 359,000, the lowest level since July, the Labor Department said on Thursday. The prior week’s figure was revised up to show 3,000 more applications than previously reported.

Economists polled by Reuters had forecast claims falling to 378,000 last week. The four-week moving average for new claims, a better measure of labor market trends, fell 4,500 to 374,000, breaking five straight weeks of increases.


Sealy [ZZ  2.14        ]Tempur-Pedic International [TXP  Unavailable      ()   ] is buying its rival mattress makerfor $2.20 a share, or about $228.6 million in cash. Sealy will continue to be operated separately.

Monsanto [MON  89.49    -0.96  (-1.06%)   ] – Wells Fargo has upgraded the stock to “outperform” from “market perform,” following meetings with company management. The firm says it’s more optimistic that Monsanto’s challenges are behind it.

Dish Network [DISH  30.41    -0.73  (-2.34%)   ] – The satellite TV operator will launch a national broadband service next week. It’s expected to reveal its plans for a service called dishNET, aimed at customers in rural areas.

Goodyear Tire & Rubber [GT  11.99    -0.18  (-1.48%)   ] – Goldman Sachs has upgraded Goodyear to “buy” from “neutral,” saying it sees near-term tailwinds that will boost operating income, including a surge in tire replacement demand.

Hewlett-Packard [HPQ  17.11    0.40  (+2.39%)   ] – The stock has been downgraded to “underperform” from “hold” at Jefferies. The firm says HP will aggressively attack the smartphone and tablet markets, which it believes to be a risky move.

Cepheid [CPHD  39.15    0.20  (+0.51%)   ] – The company says third-quarter revenue will fall short of estimates, due to part shortages for the diagnostic products company’s “Xpert” cartridges.

Thor Industries [THO  34.41    0.17  (+0.5%)   ] – Thor reported fiscal fourth-quarter profit of $0.84 per share, seven cents above estimates, with revenue also exceeding consensus. The recreational vehicle maker saw double-digit sales growth and said it’s benefiting from a streamlining of its operations.

Apple [AAPL  665.18    -8.36  (-1.24%)   ] – UBS is reducing its fiscal first-quarter iPhone unit shipment estimates, citing supply constraints. UBS has reduced its estimate to 38 million from the prior 40 million.

Microsoft [MSFT  30.165    -0.225  (-0.74%)   ] – The European Commission may declare Microsoft in breach of a 2009 anti-trust ruling. That ruling ordered the software giant to give Windows users a choice of internet browsers, but antitrust chief Joaquin Almunia says the company has not kept its promises.

Yahoo [YHOO  15.61    -0.065  (-0.41%)   ] – Goldman Sachs is reinstituting coverage of Yahoo with a “buy” rating, saying the appointment of a new CEO and the removal of uncertainty surrounding Yahoo’s Alibaba stake are among factors that will unlock shareholder value.