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Goldman, other economists shave Q2 GDP expectations

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Economists shaved growth expectations for the second quarter after the June durable goods report revealed weak shipments and raised a red flag on high hopes for business spending in the second half.

Goldman Sachs economists trimmed second-quarter growth to 3.0 percent from 3.1 percent, but JPMorgan and Barclays economists are looking for even less—2.6 percent and 2.8 percent, respectively. Core capital goods shipments, which affect GDP calculations, fell 1 percent in June, and May was revised to a negative 0.1 percent from a 0.4 percent rise.

A CNBC/Moody's Analytics rapid update shows that economists cut their GDP forecasts by 0.1 percent, and that the composition of growth is less favorable with more inventory build and less final demand.

Durable goods orders—measuring shipments of everything from dishwashers to aircraft—actually rose slightly more than expected at 0.7 percent, after May's decline of 1 percent. Core capital goods orders rose 1.4 percent month over month, and durable goods, ex-transport were up 0.8 percent.

But May's core—nondefense capital goods orders ex-aircraft—was revised down from a 0.7 percent gain to a negative 1.2 percent.

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The advanced reading on Q2 GDP is expected Wednesday, and while looking back, it could carry more weight than usual after the first quarters' shock 2.9 percent decline. If JPMorgan and Barclays estimates for sub-3 percent growth is correct, the economy would have actually contracted in the first half.

JPMorgan economists said they reduced their tracking estimate of real equipment spending in Q2 from about a 12.5 percent annual growth rate to 10 percent. "Moreover, the weakness late in the quarter implies a soft trajectory for capital spending heading into 3Q. All in all, it's nice to see that cap-ex has rebounded from its Q1 hole, but the latest data do nothing to indicate that capital spending is about to shift into higher gear," wrote JPMorgan's chief U.S. economist, Michael Feroli.

Goldman Sachs economists pointed out that both machinery and motor vehicle shipments contributed to the weakness, falling 2 percent in June.

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Barclays economists said they had expected a much greater rebound in the volatile defense category than the 2.4 percent reported, after last month's 26 percent decline.

"Despite the downward revision, core orders rose 6.7 percent (q/q saar) in Q2 2014, against a rise of 4.1 percent in Q1 2014," the Barclays economists noted.

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"On balance, this report is consistent with our view that the economy rebounded in the second quarter, but only to a modest pace of growth," they added. "The momentum in core orders in the second quarter bodes well for equipment and software spending in the second half of the year. However, the softness in core shipments suggest less equipment and software spending in Q2 2014 than before."

By CNBC's Patti Domm

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.