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Gold prices unchanged, set for second straight weekly fall

Gold prices were flat in early Asian trade on Friday, as a firm

dollar

offset ease in early-tapering bets, although the precious metal was headed for a second consecutive weekly decline.

FUNDAMENTALS
Spot gold was unchanged at $1,752.78 per ounce by 0101 GMT. It is down 0.5% so far for the week.

US gold futures were up 0.2% to $1,754.40.

The dollar held firm near a more than four-month high, hit earlier this week, underpinned by data showing US producer prices posted their largest annual increase in more than a decade.

Meanwhile, Americans filing claims for unemployment benefits fell again last week as the economic recovery continues to be bumpy, a separate Labor Department report showed on Thursday.

Wednesday’s US consumer price report hinted that inflation may have peaked, reassuring investors that the Fed will not feel obligated to hasten plans to rein in emergency-level support of the economy, but they remained worried that rising prices could continue to weigh on everything from bond prices to corporate margins.

Gold is seen as a hedge against inflation, but a Fed rate hike will increase the opportunity cost of holding non-yielding bullion while boosting the dollar.

Silver rose 0.2% to $23.19 per ounce.

Platinum

fell 0.2% to $1,015.90 and palladium eased 0.3% to $2,616.80.

US economy likely logged its weakest performance in 74 years in 2020

WASHINGTON: The US economy likely contracted at its sharpest pace since World War Two in 2020 as COVID-19 ravaged services businesses like restaurants and airlines, throwing millions of Americans out of work and into poverty.

The Commerce Department‘s snapshot of fourth-quarter gross domestic product on Thursday is also expected to show the recovery from the pandemic losing steam as the year wound down amid a resurgence in coronavirus infections and exhaustion of nearly $3 trillion in relief money from the government.

The Federal Reserve on Wednesday left its benchmark overnight interest rate near zero and pledged to continue injecting money into the economy through bond purchases, noting that “the pace of the recovery in economic activity and employment has moderated in recent months.”

President Joe Biden has unveiled a recovery plan worth $1.9 trillion, and could use the GDP report to lean on some lawmakers who have balked at the price tag soon after the government provided nearly $900 billion in additional stimulus at the end of December.

“Last year was awful for the economy,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “This was the first service industry recession in recent memory where a lot of jobs were lost.”

Economists are forecasting that the economy contracted by as much as 3.6% in 2020, the worst performance since 1946. That would follow 2.2% growth in 2019 and would be the first annual decline in GDP since the 2007-09 Great Recession.

In the fourth quarter, GDP is estimated to have expanded at a 4% annualized rate, according to a Reuters survey of economists. The virus and lack of another spending package curtailed consumer spending, and partially overshadowed robust manufacturing and the housing market.

The anticipated big step-back, following a historic 33.4% growth pace in the July-September period, would leave GDP roughly 2.3% below its level at the end of 2019. With the virus not yet under control, economists are expecting growth to further slow down in the first quarter of 2021, before regaining speed by summer as the additional stimulus kicks in and more Americans get vaccinated.

“No doubt it will be a challenging few months as the vaccines struggle to get distributed and lockdowns remain in place,” said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. “However, as COVID gets under control, we expect growth to ratchet higher, running at around a 7% pace in the second half of the year.”

K-SHAPED RECOVERY
The services sector has borne the brunt of the coronavirus recession, disproportionately impacting lower-wage earners, who tend to be women and minorities. That has led to a so-called K-shaped recovery, where better-paid workers are doing well while lower-paid workers are losing out.

The stars of the recovery have been the housing market and manufacturing as those who are still employed seek larger homes away from city centers, and buy electronics for home offices and schooling. Manufacturing’s share of GDP has increased to 11.9% from 11.6 at the end of 2019.

A survey last week by professors at the University of Chicago and the University of Notre Dame showed poverty increased by 2.4 percentage points to 11.8% in the second half of 2020, boosting the ranks of the poor by 8.1 million people.

Rising poverty is likely be underscored by persistent labor market weakness. The Labor Department is expected to report on Thursday that 875,000 more people filed for state unemployment benefits last week, according to a Reuters survey.

About 16 million Americans were receiving unemployment checks at the end of 2020. The economy shed jobs in December for the first time in eight months. Only 12.4 million of the 22.2 million jobs lost in March and April have been recovered.

Lack of jobs and the expiration of a government weekly jobless subsidy likely restrained growth in consumer spending to about a 3% rate in the fourth quarter. Consumer spending, which accounts for more than two-thirds of the U.S. economy, notched a record 41% pace in the July-September quarter.

Renewed business restrictions likely kept spending on services subdued. Demand for goods that complement life at home probably boosted business investment, with double digit growth expected again in the fourth quarter.

Businesses were also rebuilding inventories last quarter, which is likely to have contributed to GDP growth. But the inventory accumulation included imports, likely leading to a larger trade deficit, which subtracted from growth.

Another quarter of double-digit growth is expected from the housing market, thanks to historically low mortgage rates. Government spending was likely weak, hurt by state and local governments, whose finances have been squeezed by the pandemic.

US economy grows 6.4% in Q1, and it’s likely just the start

The US economy grew at a solid 6.4% rate in the first three months of the year, setting the stage for what economists believe may be the strongest year for the economy in about seven decades.

Growth in the gross domestic product, the country’s total output of goods and services, was unchanged from two previous estimates, the Commerce Department said Thursday, an acceleration from the 4.3% pace of the fourth quarter.

Economists believe that economic growth has continued to accelerate in the current quarter, which ends this month, as vaccinations become widespread and Americans eager to get outside are being welcomed by newly re-opened businesses. Surging activity from consumers is being fueled in part by nearly $3 trillion in financial support that the government has approved since December.

Additional economic data that emerged Thursday also points to a nation that has regained its footing quickly after being thwacked by a global pandemic, though jobless claims remain stubbornly above 400,000.

“This summer will be hot for the US economy,” said Lydia Boussour, lead US economist for Oxford Economics. “As the health situation continues to improve, consumers sitting on piles of savings will give into the urge to splurge on services and experiences they felt deprived of during the pandemic.”

Boussour forecast that GDP growth in the current April-June quarter will surge to an annual rate of 12% and growth for the entire year will come in at 7.5%. That would be the best annual performance since 1951.

Even economists whose forecasts for 2021 growth range from 6% to 7% believe growth this year will be the best since a 7.2% gain in 1984, when the US was emerging from an extended and painful recession.

Economists believe growth this quarter will be enough to push GDP output above the previous peak reached at the end of 2019 before the pandemic struck and cut off the longest economic expansion in US history.

The data released Thursday was government’s third and final look at first-quarter GDP, and arrived along side a separate report from the Commerce Department that showed May orders from US factories for big-ticket manufactured goods rose for the 12th time in the last 13 months.

Orders for durable goods – meant to last at least three years – climbed 2.3% in May, reversing a 0.8% drop in April. That heated activity is taking place despite a backlogged supply chain and a shortage of workers.

Orders for aircraft shot up 27.4% last month after climbing 31.5% in April, the Commerce Department said. Excluding transportation orders – which can bounce wildly from month to month – durable goods orders rose 0.3% last month.

Factories anticipating a return to normalcy or better are ramping up operations to match demand as jobless claims continue to tick lower.

The number of Americans applying for unemployment benefits dropped last week as the job market continues to heal, albeit more slowly than many economists expected at this point in the recovery.

Jobless claims fell just 7,000 from the previous week to 411,000, the Labor Department said Thursday. While that is far from the rush to work that has been anticipated for some time now, weekly claims have fallen steadily this year from about 900,000 in January.

Even if job growth has not met most expectations, Americans are spending money and lots of it as summer kicks off.

Consumer spending, which accounts for more than two-thirds of economic activity, grew at a sizzling annual rate of 11.4% in first three months of the year, the Commerce Department said Thursday. It’s likely that some of that spending is being juiced by a round of $1,400 inpidual payments that were included in the $1.9 trillion support package Congress passed in March.

The first-quarter spending gain reflected increases in goods purchases, led by auto sales, and gains in spending on services, led by food services and travel accommodations, two areas that have benefited from the re-opening of the economy as vaccinations have increased.

Business investment grew at a strong 11.7% rate, better than the previous estimate of 10.8% growth, while government spending increased at a 5.7% rate, slightly below last month’s estimate of a 5.8% gain.

The trade deficit grew in the first quarter, subtracting 1.5 percentage points from growth, as a recovering US economy attracted rising imports while US exporters struggled with weaker overseas demand.