WrapManager’s Weekly Summary of Top Economic and Market News United States The Bureau of Economic Analysis released initial second quarter GDP numbers Wednesday, coming in at +1.7%. Since real GDP increased +1.1% in the first quarter, this marked an overall acceleration in the growth rate. The uptick primarily reflected gains in nonresidential fixed investment, exports, a smaller decrease in federal government spending, and an upturn in state and local government spending[i]. A day before GDP numbers were released, the Federal Reserve issued a statement labeling US economic activity in the first half of the year as “modest.” They pointed to improving labor market conditions as well as stronger activity within the housing sector, but noted that fiscal policy (reduced government spending) is restraining growth. With inflation still in check and economic conditions as they are, the Fed has indicated they will continue with their current monetary stimulus programs[ii]. President Obama is floating a proposal to cut corporate taxes from 35% down to 28%, while giving manufacturers a preferred rate of 25%. His plan would also include a minimum tax on foreign earnings, as a method of working to avoid corporate tax evasions and curbing international tax havens. The proposed plan is likely to be met by resistance from both parties in Congress, as Democrats are reluctant to lower taxes and Republicans are wary of the new spending proposals that come with the plan. Republicans have also been fairly vocal that any grand deficit reduction deal would need to include structural changes to programs like Medicare and Social Security, which Obama’s proposal does not include[iii]. Europe Last week we reported that European PMI (manufacturing data) came in at 50.1, but those figures were revised higher this week to 50.3. Any reading above 50 signals expansionary activity. PMI rose for every country in the euro zone except for Spain, and the 50.3 reading marks a two year high[iv].
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