- WASHINGTON (Reuters) -- Soaring
defense spending is driving the U.S. economy, but not doing too much for
the unemployment picture as Americans still struggled to find jobs and
corporations saw their profits fall, government reports on Thursday showed.
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- The Commerce Department said the economy grew at a revised
3.1 percent pace in the second three months of 2003, boosted by defense
spending, business investment and consumers.
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- That was faster than the 2.4 percent rate first reported
a month ago and boosts hopes momentum will carry into the current quarter.
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- "The numbers are a confirmation of the existing
trend or prevailing view that the economy is strengthening, hitting out
of the second quarter and into the third," said Nick Bennenbroek,
foreign exchange strategist at Brown Brothers Harriman.
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- But in a separate report, the Labor Department said the
number of Americans lining up to claim jobless benefits in the Aug. 23
week rose to 394,000 from 391,000 the prior week.
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- Although the number was below 400,000, a level considered
a sign of a soft labor market, analysts said the claims numbers were disappointing.
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- In a separate report the Commerce Department also estimated
after-tax corporate profits were down by 3.4 percent for the second quarter.
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- The dollar strengthened slightly in reaction to the good
growth number, but Treasury bonds also rose because of the rise in jobless
claims.
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- Stocks opened higher, encouraged by faster economic growth
which fostered hopes for better corporate profits.
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- Within the gross domestic product report, government
spending on defense -- much of it to pay for the U.S.-led war in Iraq --
soared 45.9 percent, the strongest gain since the third quarter of 1951,
during the Korean War.
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- In a sign that long-awaited business confidence is returning,
nonresidential spending -- the broadest category of investment -- rose
8.0 percent in the spring quarter after a drop of 4.4 percent in the first
quarter.
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- Business investment, touted as a key to economic recovery,
has lagged since the 2001 recession.
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- Consumers, whose spending fuels more than two-thirds
of national economic activity, were also in a buoyant mood with consumer
spending rising 3.8 percent.
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- Businesses cut back on inventories at an annual rate
of $20.9 billion in the second quarter after building them up at a $4.8
billion rate in the first quarter of the year. Lean inventories are generally
considered a promising sign, since this means companies may have to ramp
up production to keep up with demand. This in turn can lead to a pick up
in hiring.
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- "The third quarter is stacking up to be a 4 to 6
percent quarter," said Jim Glassman, senior economist at J.P. Morgan
in New York. "It's all a demand story and businesses have been surprised
by this and will have to build inventories."
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- The GDP report follows upbeat consumer confidence data
for August, and gains in durable goods and home sales in July.
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- But analysts continue to have lingering worries about
unemployment.
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- "Most of the data coming in this month have been
strong but still no jobs," said William Cheney, chief economist at
John Hancock Financial Services.
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- "That's the wildcard for the economic outlook."
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- Analysts and policy makers will be watching the Labor
Department's monthly payroll data report, due to be released next Friday,
for more details on the jobs market.
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- Wall Street is expecting non-farm payrolls to have added
a scant 10,000 jobs in August after shedding 44,000 in July. This would
mark the first rise since January.
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