Arrow-right Camera
The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

U.S. economy in rally mode, aided by energy stocks

Kevin G. Hall Tribune News Service

WASHINGTON – A funny thing happened while the world financial markets shuddered in panic this week. A range of indicators about the U.S. economy, the world’s largest, showed a recovery that’s continuing to gain steam.

Even as stocks whipsawed, data on housing, consumer confidence, the labor market and economic growth all showed the economy flexing its growing muscle.

The latest data came Thursday when the Bureau of Economic Analysis said the U.S. economy grew by a robust 3.7 percent from April through June, not the 2.3 percent reported last month. Businesses built their inventories at an unusually high pace and helped power along the U.S. economy, the bureau said.

On Wall Street, U.S. stocks rose sharply Thursday for the second consecutive day. The strong rebound – the Dow Jones industrial average gained nearly 1,000 points in two days – follows a gut-wrenching month that saw plummeting stock values worldwide and a volatility not seen in four years. In the previous six straight sessions, the Dow shed a total of 1,879 points, or 11 percent.

A key factor in Thursday’s gains was a report of unexpectedly strong U.S. economic growth in the second quarter, an encouraging sign that economic momentum was building before the turmoil in financial markets. Markets also got a boost from energy stocks, which rose on a jump in crude-oil prices.

The Dow gained 369.26 points, or 2.3 percent, to 16,654.77 after soaring 619 points Wednesday. The broader Standard & Poor’s 500 index rose 2.4 percent, and the Nasdaq composite index, the only one to turn positive for the year, gained nearly 2.5 percent.

Among other economic news this week:

• The Labor Department reported that first-time claims for unemployment benefits fell 6,000, to 271,000, for the week that ended on Aug. 22. That exceeded the forecasts of mainstream economists and suggests that August hiring, to be reported by the government on Sept. 4, is likely to remain at its healthy pace.

• Consumer confidence snapped back in August to its highest reading in seven months.

• Sales of new homes rose by 5.4 percent in July, the Commerce Department reported, good news on top of last week’s reading of resale of existing homes, which hit its highest point in more than eight years.

With that positive view of the U.S. economy, some economists wonder why financial markets look past U.S. strengths and get worked up over an economic slowdown in China and some problems in its insular stock market that is off limits to most foreign investors.

“The economic picture in the United States, Europe and Japan doesn’t look all that bad,” said Scott Anderson, chief economist for Bank of the West in San Francisco. “The global economy might be able to weather this if China could get its act together and stop acting like they’re panicking over there.”

China intervened again in its financial markets Thursday, quietly buying up stocks and helping to push its stock indexes into positive territory after a week of turmoil.

Economists do question if the strong second-quarter growth rate of 3.7 percent can be continued, after a slow first quarter of anemic 0.6 percent growth. Working against the hot growth is a strong build in inventories from April to June that is likely to be worked off from July through September. Rather than order more goods, companies may be working off what they’ve ordered.

“With inventories continuing to build unsustainably, the correction will undoubtedly impact growth in the third quarter, and perhaps the fourth,” warned Nariman Behravesh, chief economist for forecasters IHS Global Insight.

Still, Thursday’s jobless claims numbers were important because they suggest the financial turmoil wasn’t having an immediate effect on the job market. If China’s stumbles continue, however, it could spell trouble for California’s economy, one of the world’s largest all by itself.

“The California economy is doing great,” said Anderson, pointing to strong July employment data and “no real sign that I can tell that California is getting impacted.”

But California seaports, along with those up the coast in Washington, are the passage point for most goods coming from and going to China. Chinese tourists flock to the U.S. Pacific Coast, and distrusting their own economy, Chinese citizens have been aggressive real estate investors in many U.S. cities. Protracted financial woes in China could dent not just U.S. trade but tourism and direct foreign investment on the U.S. West Coast.

And if China continues to roil global finance, it could dry up funds for venture capitalists in California’s Silicon Valley that fund tech and innovation startups.

“That could certainly impact areas like the Valley that have been red hot in recent years,” said Anderson, who closely follows the California economy.

The Los Angeles Times contributed to this report.