Surprise: Economy grows 1.7 percent April through June

Recapping the day's news and newsmakers through the lens of CNBC.


It's probably too soon to break out the bubbly, but this morning's economic news did cheer economists. Things are moving in the right direction, at least.

The Commerce Department reported that gross domestic product grew by 1.7 percent in the second quarter, a big jump over the downwardly revised 1.1 percent for the first quarter.

Granted, 1.7 percent is pretty modest compared with the 3 percent or 4 percent everyone would like to reach, and it represents a drop from last year's pace of about 2.8 percent, revised from the 2.2 percent reported earlier. But economists polled by Reuters had forecast only 1 percent for the most recent quarter, and a surprise on the upside is obviously better than one on the down. Growth for the year's first half was a sluggish 1.3 percent.

Many economists feel growth must exceed 2 percent to bring down unemployment. In advance of the government jobs report coming Friday, ADP and Moody's Analytics today said 200,000 jobs were created in the private sector in July, beating forecasts of 180,000.

Growth in the April to June period was helped by business spending, exports and a slowdown in the decline of government spending. Unfortunately, consumer spending was lower, but savings were up, perhaps foreshadowing higher consumer spending in the future.

A twist in all this: the government has changed its methodology for measuring GDP.


"I can't tell you if that 1.7 would have looked different under the old [calculation] style or how much affect there is, but it's definitely better than anticipated."
—CNBC's Rick Santelli

"There are two ways to think about the government [spending] number, which are A, the sequester wasn't as bad as we thought, or B, it's coming."
—CNBC's Steve Liesman

—"200K in any economy other than the one we are in, with 7.6 percent unemployment, would be considered pretty darned good." Mark Zandi, Moody's Analytics.


Who creates jobs, economic growth and profits?

Entrepreneurs and executives, of course. But let's not forget they get help from others: the middle class. The middle class drives consumer spending, and that ripples through the economy. When the middle class does well, the rest falls into place.

So, if you follow this line, here's a happy forecast: spending by the middle class could push global consumer spending up by nearly a third by 2020. That's according to a study by market research firm Euromonitor.

The middle class means consumers with household income from half to double a country's average income. Middle class spending is not growing very fast in developed markets, but it's soaring in developing ones, rising 10.4 percent a year in a five-year period ending with 2012.

The top spending priorities for middle class consumers include holiday travel, purchasing vehicles and paying down debt.


"The past few decades have seen explosive growth in the middle class in emerging markets, as shoppers with new levels of disposable income are ready to spend and are optimistic about their future."
—Euromonitor study


Let's be honest, lots of business executives have concerns about Obamacare. Maybe that's too mild: Many just hate it.

But it's the law, and efforts to derail it haven't gone anywhere. Given that, it's good news anytime the government clears up an uncertainty. It did that yesterday with an SEC filing reporting a deal with to provide the insurance marketplace to be operated by the government. The site could enroll millions.

If things go as the Obama administration says they will, making it easier to shop for health insurance will draw more people the pool, putting downward pressure on insurance prices.

The deal covers 36 marketplaces that the government will run in partnership with individual states, or on states' behalf. Those marketplaces cover about 60 percent of the U.S. population. Open enrollment begins Oct. 1. Obamacare requires that most people either obtain insurance or face a fine, though many will be covered by workplace plans.


"Having us involved is going to expand the size of the pool, and all of that is going to help to mitigate risk, balance risk and hopefully keep prices and premiums stable."
— CEO Gary Lauer


Natural gas is cheap, about half the cost of gasoline, and the U.S. has plenty of it—more all the time thanks to fracking. And it's pretty easy to adapt a gasoline engine to run on natural gas.

So why do we rely on the liquid stuff? It's largely a chicken and egg problem, with service stations and car makers each waiting for the other to make the switch to gas feasible.

Now Ford may be breaking the stalemate, with promises to provide a gas-enabled F-150 pickup for 2014 models. The truck will be designed for ordinary consumers. In the past, gas vehicles have been aimed at commercial users, who in many cases operate their own fueling stations and keep fleets relatively close to home.

Ford's gas F-150s will go for a premium. It costs about $315 to modify the engine at the factory to run on natural gas, and another $9,500 for an outfitter to install tanks and connectors. With gas at the equivalent of $2.11 a gallon, an owner could recoup the extra cost in two to three years, Ford estimates.


"What's important is that this is [Ford CEO] Al Mulally saying it's not a chicken and egg anymore. We'll build it and they will come. ... This is it. This is what starts the revolution, because this is the most popular truck. Now if you're Chevron, if you're Shell, maybe you've got to install natural gas pumping stations."
—CNBC's Jim Cramer