Shipping containers are unloaded from a ship at a container terminal at the Port of Long Beach-Port of Los Angeles complex in Los Angeles, California, U.S., April 7, 2021. REUTERS/Lucy Nicholson/File Photo

WASHINGTON, July 28 (Reuters) – U.S. economic growth likely rebounded moderately in the second quarter as businesses boosted exports and maintained a healthy pace of capital spending, which could ease financial market fears that the economy was already in recession.

The Commerce Department’s preliminary second-quarter GDP report on Thursday, however, will still show the economy was losing momentum as high inflation prompted the Federal Reserve to aggressively tighten monetary policy.

“The economy is still doing well,” said Brian Bethune, professor of economics at Boston College. “It’s not as strong as 2021, but we’re not in a recession.”

According to a Reuters survey of economists, GDP growth likely rebounded to an annualized rate of 0.5% last quarter. Estimates ranged from a rate of contraction as low as 2.1% to a rate of growth as high as 2.0%.

The survey, however, came ahead of Wednesday’s data showing the June merchandise trade deficit was the smallest in seven months and shipments of non-military capital goods excluding aircraft rose sharply.

The reports prompted JPMorgan to raise its estimate for second-quarter GDP growth to a rate of 1.4% from 0.7%. Goldman Sachs raised its forecast by 0.6 percentage points to a rate of 1.0%. Several other Wall Street banks also raised their estimates. The Atlanta Fed raised its estimate by four tenths of a percentage point to a still-negative rate of 1.2%.

A string of soft housing data along with weak business and consumer sentiment surveys bolstered expectations of a second straight quarterly negative GDP. The economy contracted at a pace of 1.6% in the first quarter.

The White House is vigorously pushing back recession rumors as it seeks to calm voters ahead of the Nov. 8 midterm elections that will decide whether President Joe Biden’s Democratic Party retains control of the U.S. Congress.

Treasury Secretary Janet Yellen is due to hold a press conference on Thursday to “discuss the state of the US economy.”

Another drop in GDP would meet the standard definition of a recession. But the National Bureau of Economic Research, the official arbiter of recessions in the United States, defines a recession as “a significant drop in economic activity distributed throughout the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators.” Read more

Employment growth averaged 456,700 per month in the first half of the year, while industrial production grew at a rate of 6.1% in the second quarter. But house building has softened.

NOT IN RECESSION

“While relevant economic indicators appear mixed, we do not believe the NBER will feel the need to label the first half of the year a recession even though GDP contracted in the first two quarters of 2022,” said Daniel Silver, economist. at JPMorgan in New York.

Slowing growth, however, could prompt the Fed to forego sharp interest rate hikes, although much depends on the path of inflation, which is well above the 2% target of the Fed. US central bank.

On Wednesday, the Fed raised its key rate an additional three-quarters of a percentage point, bringing the total interest rate hikes since March to 225 basis points. Fed Chairman Jerome Powell acknowledged the slowdown in economic activity due to the tightening of monetary policy. Read more

A lower trade deficit, thanks to record exports, is expected to have added up to 1.5 percentage points to GDP growth in the last quarter. That would end seven straight quarters in which trade has held back growth.

As businesses continue to replenish inventory, the pace has slowed from what was seen in the fourth quarter of 2021 and the first three months of this year. This is partly due to shortages of materials like semiconductors, which hamper the production of motor vehicles. On the other hand, slowing consumer spending due to inflation has left retailers with excess inventory and little appetite for hoarding more inventory.

Walmart said this week it needed further price cuts to reduce inventory, which it estimated in May at more than $60 billion by the end of the first quarter.

Inventories are expected to have subtracted at least 0.7 percentage points from GDP growth in the last quarter. Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, is thought to have slowed significantly from the subdued 1.8% rate recorded in the first quarter.

“Consumers have been taken aback by soaring gasoline prices,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania. “You will see an increase in consumer spending, but it just won’t be as strong as it has been in recent quarters.”

Although the pace of growth in business equipment spending likely slowed from the robust rate in the January-March quarter, it was likely still enough to help the economy rebound from its first recession since the second quarter of 2020. .

A measure of domestic demand – excluding trade, inventories and government spending – will be closely watched to gauge how buoyant the economy is.

Final sales to domestic private buyers account for approximately 85% of overall spending and grew at a rate of 3.0% in the first quarter. Residential investment is expected to have contracted, dragged down by weakness in residential construction as well as home sales, which reduced brokerage commissions.

Reporting by Lucia Mutikani; Editing by Andrea Ricci

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