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U.S. second-quarter GDP growth revised sharply higher to 3.7 percent

WASHINGTON The U.S. economy grew faster than initially thought in the second quarter on solid domestic demand, showing fairly strong momentum that could still allow the Federal Reserve to hike interest rates this year.

Gross domestic product expanded at a 3.7 percent annual pace instead of the 2.3 percent rate reported last month, the Commerce Department said on Thursday in its second GDP estimate for the April-June period.

The GDP report, which was released in the wake of a global stock market sell-off, should assure investors and cautious Fed officials that the United States is in good shape to weather the growing strains in the world economy.

“The U.S. economy entered the current market turbulence with momentum, which will help it to shrug off the drag from China and other developing economies,” said Diane Swonk, chief economist at Mesirow Financial in Chicago.

Concerns over slowing economic growth in China sent global equity markets into a tailspin last week, raising doubts that the U.S. central bank would raise its short-term interest rate next month. Markets have since recouped some of the huge losses.

On Wednesday, New York Fed President William Dudley said that prospects of a September lift-off in the central bank’s key lending rate “seems less compelling to me than it was a few weeks ago.”

U.S. stocks rose sharply on the GDP data, a day after posting their biggest one-day gain in four years. Prices for U.S. government debt fell, while the dollar firmed against a basket of currencies.

“The Fed could certainly hold off until later this year, citing the recent market turmoil, but the economic fundamentals would also justify a small September rate increase,” said Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh.

The upward revisions to second-quarter GDP growth also reflected the accumulation of $121.1 billion worth of inventories, $11.1 billion more than previously estimated. That meant inventories contributed 0.22 percentage point to GDP instead of subtracting 0.08 percentage point as reported last month.

While the huge inventory build will likely weigh on growth in the third quarter, the blow could be softened by rebounding business investment in capital goods.

Economists had expected that second-quarter GDP growth would be revised to a 3.2 percent rate. The economy grew at a 0.6 percent rate in the first quarter. Output expanded 2.2 percent in the first half of the year compared to growth of 1.9 percent during the same period in 2014.


Underscoring the solid economic fundamentals, a measure of private domestic demand that excludes trade, inventories and government expenditures rose at a 3.3 percent rate in the second quarter, instead of the previously reported 2.5 percent pace.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 3.1 percent rate, rather than the 2.9 percent pace reported last month. Consumer spending got off a to brisk start in the third quarter, with retail sales rising solidly in July.

A strong labor market, cheaper gasoline and relatively higher house prices are boosting household wealth, helping to support consumer spending.

The employment picture was further brightened on Thursday by a separate report from the Labor Department showing initial claims for state unemployment benefits slipped 6,000 to a seasonally adjusted 271,000 for the week ended Aug. 22.

It was the 25th straight week that claims remained below the 300,000 threshold, which is usually associated with a strengthening labor market.

Economists also said they expected the recent stock market rout to have only a limited impact on the economy.

“As long as this is a garden-variety correction, the impact on the U.S. economy should be modest,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester Pennsylvania.

The Commerce Department said investment in nonresidential structures was revised to show an increase rather than a contraction, reflecting stronger spending on commercial and healthcare construction.

Spending on residential construction, which includes brokers’ commissions, was raised. More gains are likely this quarter after a third report on Thursday showed an increase in contracts to purchase previously owned homes in July.

In the second quarter, business spending on equipment was not as weak as initially thought.

The energy sector continued to weigh on growth as it struggles with the lingering effects of deep spending cuts by oil-field companies like Schlumberger (SLB.N) and Halliburton (HAL.N) in the aftermath of a more than 60 percent plunge in crude oil prices in the past year.

Spending on mining exploration, wells and shafts plunged at a 68.3 percent rate in the second quarter, the largest decline since the second quarter of 1986.

The trade deficit was smaller than previously reported, adding 0.23 percentage point to GDP growth.

The GDP report also showed a rebound in after-tax corporate profits, but a strong dollar and lower oil prices remain a constraint.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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Ackman’s hedge fund down 13.1 percent for August

BOSTON Hedge fund mogul William Ackman’s Pershing Square Holdings portfolio fell 13.1 percent this month, leaving the fund down 4.3 percent for the year, the firm said on Thursday.

The performance numbers cover returns through Tuesday, Aug. 25.

On Wednesday, Ackman told investors that his firm’s roughly 10 percent gain through July had turned into a loss amid the market rout. He did not say exactly how much the fund had lost.

On Thursday, when stocks rose steeply for a second day in a row, several of Ackman’s holdings saw strong gains including Valeant (VRX.TO) and Canadian Pacific (CP.TO), suggesting to some investors that his portfolio’s performance may still improve before month-end numbers are finalized next week.

(Reporting by Svea Herbst-Bayliss; Editing by Steve Orlofsky)

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Boeing hits 777X jet milestone, says program on schedule

Boeing Co (BA.N) said on Thursday it has determined the basic design of its 777-9 jetliner, a key milestone that suggests it is on schedule to deliver the first of its new family of long-range 777X jets by 2020.

Development of the 777X, which includes the 777-9 and smaller 777-8, comes as Boeing speeds up commercial aircraft production to more than 76 a month by 2020 from 62 now, taking output to the highest level in the company’s 100-year history.

Boeing expects to build the first 777-9, to be its largest twin-engined plane, in 2017. Output of the current 777 will not slow during the transition, the company has said, although some analysts remain skeptical.

The 777X, a successor to the 777 widebody jet introduced in 1995, will have carbon-fiber composite wings with folding wingtips and an aluminum fuselage. It will use 12 percent less fuel and be 10 percent cheaper to operate than competing jets, Boeing said.

The 777X will compete with Airbus’ A350, which also competes with the Boeing’s 787 Dreamliner.

Boeing’s announcement on Thursday that the 777-9 had reached “firm configuration” means the plane’s basic design and capabilities have been determined, setting the stage for design of specific parts and systems.

The company’s stock rose 2 percent to $131.87 on the New York Stock Exchange, about in line with the broader market.

The 777-9 will carry 400-to-425 passengers and have a range of 7,600 nautical miles (14,075 kilometers), making it the largest plane in Boeing’s lineup by seat capacity. It will be the largest twin-engine plane in the world, though smaller than the four-engine Airbus A380.

Under specifications Boeing released earlier this month, its biggest plane, the 747-8, is no longer its largest in terms of standard seat capacity.

“The program is right where we want it to be,” said Bob Feldman, who heads the 777X program. “We have an airplane and a production system that are on track and on schedule.”

Boeing is using automated technology to help assemble the 777X, and installing autoclaves, or industrial ovens, in a massive new building in Everett, Washington, to cure the wings under heat and pressure, next door to the assembly line.

Boeing said the 777X wingspan will be 235 feet, 5 inches (71.8 meters) with wingtips extended and 212 feet, 8 inches (64.8 meters) with wingtips folded.

The 777X has garnered 306 firm orders and another 14 commitments.

(Additional reporting by Sagarika Jaisinghani in Bengaluru; Editing by Jeffrey Benkoe and Christian Plumb)

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Wall St. logs biggest two-day gain since financial crisis

Wall Street rallied more than 2 percent on Thursday as strong U.S. economic data and hints that a September interest-rate hike was unlikely fueled optimism that the worst of recent market turmoil was over.

The Dow Jones industrial average scored its biggest two-day percentage gain since 2008, while the SP 500 and Nasdaq Composite racked up their biggest two-day increases since 2009.

“The worst is probably behind us but it’s going to take a while before we get back to normal and we might still see some downward risk,” said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

With Thursday’s gains, the SP has recovered about half of the 11-percent meltdown it suffered over a six-day losing streak caused by fears of slowing growth in China.

The market slump stopped on Wednesday after New York Fed President William Dudley said the case for a September hike had become “less compelling”.

Data on Thursday showed that the U.S. economy grew 3.7 percent in the second quarter – much faster than the previous estimate of 2.3 percent.

“It’s the U.S. economy versus the global economy,” said Peter Kenny, chief market strategist at Clearpool Group in New York. “Can the U.S. economy prove the naysayers wrong? Well, so far it has been able to do that and today’s data really puts a line under that.”

Traders gave a one-in-four chance that the Fed would increase interest rates in September even after the upbeat economic growth number.

Fed interest rates kept near zero helped fuel the stock market to historic levels since the financial crisis.

Even if the Fed does not tighten policy in September, expectations of an eventual hike will remain a major overhang on sentiment, warned Jim Bianco, president of Bianco Research in Chicago.

“The era of easy money would officially be over,” Bianco said. “A rate hike would mean putting the needle away, no more drugs, time for the methadone.”

To that end, investors will keep an eye on an annual conference of some of the world’s top central bankers in Jackson Hole, Wyoming over the next few days for further clues on interest rates.

The Dow Jones industrial average .DJI 2.27 percent to end at 16,654.77 and the SP 500 .SPX jumped 2.43 percent to 1,987.66.

The Nasdaq Composite .IXIC added 2.45 percent to 4,812.71.

In the past two sessions, the Dow is up 6.3 percent, the SP is 6.4 percent higher and the Nasdaq has gained 6.8 percent.

All 10 major SP sectors rose sharply, with the energy index’s .SPNY 4.9 percent jump leading the advancers as oil prices soared more than 9 percent in one of the biggest one-day rallies in years.

Giving the biggest boost to the SP and Nasdaq, shares of Apple (AAPL.O) surged 2.94 percent. The company invited journalists to a Sept. 9 event, where it is expected to unveil new iPhones.

Tesla (TSLA.O) was up 8.07 percent after its Model S P85D received the highest possible score in tests by Consumer Reports magazine.

The recent pummeling in U.S. shares reduced valuations some investors had seen as pricey. The SP 500’s valuation was about 15.4 times expected earnings as of Wednesday’s close, compared to around 17 for much of 2015, according to the most recent available Thomson Reuters StarMine data.

Advancing issues outnumbered decliners on the NYSE by 2,803 to 324. On the Nasdaq, 2,209 issues rose and 638 fell.

The SP 500 showed one new 52-week high and one new low, while the Nasdaq recorded 19 new highs and 49 new lows.

About 9.9 billion shares traded on U.S. exchanges and the 15-day moving average of 8.1 billion was the highest this year, according to Thomson Reuters data.

(Additional reporting by Tanya Agrawal, Chuck Mikolajczak; Editing by Nick Zieminski)

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McDonald’s, Tyson Foods drop farm after videotape shows animal cruelty

LOS ANGELES McDonald’s Corp and Tyson Foods both severed ties on Thursday with a Tennessee farm where workers were seen stabbing, beating and stomping on chickens in an undercover video shot by animal rights activists.

The videotape, which was unveiled by Mercy For Animals at a news conference in Los Angeles, depicts gruesome animal cruelty toward the birds at what the group said was TS Farm in Dukedom, Tennessee, which was under contract to Tyson Foods (TSN.N).

Tyson supplies chicken meat to McDonald’s (MCD.N), the world’s biggest fast-food chain, for its McNuggets.

Representatives for TS Farm could not immediately be reached for comment on Thursday.

“Animal well-being is a priority at our company and we will not tolerate the unacceptable animal treatment shown in this video,” Tyson spokesman Worth Sparkman said in a written statement.

  “Members of our animal well-being team are investigating, however, based on what we currently know, we are terminating the farmer’s contract to grow chickens for us,” said Sparkman, adding there were currently no chickens on the farm.

McDonald’s said in a statement that the company supported Tyson’s decision and “find the behavior depicted in this video to be completely unacceptable.”

The fast-food giant said it was working with Tyson to further investigate the situation.

“We’re committed to working with animal welfare and industry experts to inform our policies that promote better management, strong employee education and verification of practices,” McDonald’s said.

An investigator for the Weakley County Sheriff’s Office said the agency had opened an investigation into the farm and was working with prosecutors.

McDonald’s announced earlier this year that it would phase out its use of chickens raised with certain kinds of antibiotics at its 14,000 U.S. restaurants as part of a major restructuring plan to reverse a long sales slump.

(Reporting by Jonathan Tolliver and Dan Whitcomb; Editing by Peter Cooney)

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China official blames Fed for global market rout, not yuan

BEIJING The global stock market rout of the past week was sparked by concerns over a possible interest rate rise by the U.S. Federal Reserve and not by the devaluation of China’s yuan currency, a senior Chinese central bank official told Reuters on Thursday.

Yao Yudong, head of the bank’s Research Institute of Finance and Banking, said the U.S. central bank should delay any rate hike to give fragile emerging market economies time to prepare.

He said Beijing’s decision to let the yuan fall in value against the dollar should not make it a scapegoat for the sell-off.

“China’s exchange rate reform had nothing to do with the global stock market volatility, it was mainly due to the upcoming U.S. Federal Reserve monetary policy move,” Yao said.

“We were wronged.”

Yao’s comments, which came on the same day that state media issued commentaries defending China’s policy making, show Beijing’s sensitivity to suggestions it may have fumbled economic policy. The ruling Communist Party has drawn much of its legitimacy in past decades from fostering economic growth and raising incomes, and wants to be seen as a responsible player in the global economy.

Many analysts, however, say a key factor roiling markets is worry China’s economy might be slowing sharply despite Beijing’s efforts. That could have a significant impact on global growth, hitting company earnings and reducing demand for commodities.

Yao said China’s economy remains on a sound footing, though some emerging market economies face a possible financial crisis in the years ahead stemming from liquidity stresses if the United States raises rates.

“So we hope the Federal Reserve could further delay its interest rate rise, giving emerging markets ample time to prepare. The Fed should not only consider the U.S. economy, but should also consider the global economy, which is very fragile,” he said in an exclusive interview.

The Fed, which has been prepping investors for a possible rate hike, declined to comment.

Fed policymakers acknowledge their actions can stir global markets, but argue they need to stay focused on growth at home.

“This isn’t about us. This is about developments abroad and I think what we have to assess is how those developments abroad potentially could impinge on us,” New York Federal Reserve Bank President William Dudley said on Wednesday as he acknowledged the market turmoil had made a U.S. rate hike in September “less compelling.”

Policy insiders have told Reuters that China has been so surprised by the global reaction to its yuan devaluation that it’s likely to keep the currency on a tight leash in the near-term to head off any currency war that could spark a broader financial crisis.

China had said the revamp in its foreign exchange regime that opened the gate for the yuan’s sharp decline was an effort to let market forces play a greater role in setting the currency’s value.

Officials in Washington, who had long pressed Beijing to move toward a more market-determined exchange rate, greeted the shift with some skepticism and indicated they would watch to make sure it was not meant simply to prop up China’s exports.

Yao said the yuan CNY=CFXS is likely to see two-way moves in the near term and may resume its appreciation over time. “The (yuan) exchange rate will be basically stable with two-way volatility. We cannot rule out the possibility of yuan appreciation after 2-3 years.”


The surprise devaluation of nearly 2 percent on Aug. 11 stoked global concerns about slowing growth in the world’s second-biggest economy, coming just days after poor trade data.

But Yao shrugged off concerns about a possible ‘hard landing’ in China, saying growth was still underpinned by more resilient services and consumption. “China’s economy is in good shape. I’m very confident full-year growth will reach 7 percent,” he said.

Many economists fear China may miss its 7 percent annual growth target as recent data showed the economy, which officially grew at 7 percent in the first half, has lost steam.

China has plenty of policy room to cope with expected liquidity strains following any U.S. rate rise, Yao said, though he did not explain why he still urged the Fed to delay any move.

“China has sufficient policy room and adequate policy tools to respond,” he said.

The People’s Bank of China (PBOC) cut interest rates on Tuesday and lowered the amount of reserves that banks must hold for the second time in two months, ratcheting up support for a stumbling economy and a plunging stock market.

The yuan’s inclusion in the International Monetary Fund’s currency basket, known as Special Drawing Rights (SDR), will help ease a shortage of liquidity globally, but may not happen for another 20 years due to China’s sustained current account surplus, Yao said.

“China’s high savings rate means China cannot provide liquidity to the world via the current account right now,” he said.

(Reporting by Kevin Yao in Beijing; Additional reporting by Jason Lange in Washington and Jonathan Spicer in New York; Editing by Ian Geoghegan and Chizu Nomiyama)

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Caterpillar Inc plans to cut 475 more jobs amid revenue decline

Heavy machinery manufacturer Caterpillar Inc (CAT.N) said it plans a new round of layoffs to cut costs as declining revenues from global mining and construction activities erodes its bottom line.

The Peoria, Illinois-based company said it notified workers earlier this week it will reduce staff in its customer services support division by cutting 475 jobs. The move comes after the company previously announced about 270 layoffs for Illinois employees.

“The restructuring is a result of a consolidation of several divisions combined with current business conditions,” spokeswoman Lisa Miller said in a written statement.

Caterpillar has let go about 4,800 employees over the past year and has cut 20,000 full-time employees worldwide since 2012, more than 10 percent of its global workforce.

The most recent layoffs will primarily affect employees at facilities around central Illinois, including Peoria and Morton, but will also include some global positions, Miller said.

The positions were responsible for supporting after-market parts and service and handling customer and dealer support, Miller said.

The layoffs are expected to take effect on various dates and some may not be effective for several months. The impacted workers are office personnel and are not union-represented employees.

In July, the company reported a drop in quarterly profit due to an expected decline in construction revenue on reduced residential building activity in China and Brazil, soft sales related to oil and gas construction in the United States and the strong U.S. dollar undercutting the value of sales in Europe.

(This version of the story corrects misspelling of affect in fifth paragraph)

(Reporting by Meredith Davis in Chicago; Editing by Alan Crosby)

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Tiffany earnings fall as high costs, strong dollar bite

Tiffany Co (TIF.N) posted a 15 percent drop in quarterly earnings due to a strong dollar and the cost of developing and bringing out new products, sending shares of the luxury jeweler to an 18-month low.

The company, known for its pale blue boxes and iconic Tiffany Diamond, also forecast a surprise 2-5 percent decline in earnings for the year ending January.

Tiffany’s shares fell as much as 4.2 percent.

Though still a byword for luxury jewelry, Tiffany has been slow to innovate while the market has grown to offer customers a wide variety of high-end jewelry.

The company, founded in 1837, is spending heavily on designing and marketing contemporary gold and silver jewelry to appeal to a younger, more style-conscious consumer.

Among its newest products are the Tiffany T jewelry collection – described by the company as “unapologetically modern” – and Swiss-made CT60 watches. The company is also revamping some of its older lines.

These costly steps, designed to boost sales in years to come, will eat into profit in the short term, said Brian Yarbrough, analyst at Edward Jones.

The company’s second-quarter profit fell to $104.9 million, largely due to a 9 percent increase in selling, general and administrative expenses, which includes marketing.

A strong dollar has also dented the amount spent by tourists at Tiffany’s flagship Fifth Avenue store in Manhattan, besides reducing the value of the company’s overseas sales.

The average value of the dollar .DXY in the May-July period rose about 19 percent from a year earlier.

The company’s sales in the Americas fell 2 percent in the quarter ended July 31. Total revenue fell 0.2 percent to $990.5 million, while analysts had expected sales of $1.0 billion.

Excluding currency effects, revenue rose 7 percent.

Hakon Helgesen, retail analyst at Conlumino, said Tiffany “must rely on product innovation and marketing and not just on careful management of the vagaries of exchange rates.”

Tiffany’s full-year profit forecast translates to about $3.99 to $4.12 per share. Analysts were expecting $4.26 per share, according to Thomson Reuters I/B/E/S.

“While we believe that Tiffany is now seeing a recovery in its performance, we maintain our view that this year will be one in which the company’s financials lack sparkle,” Helgesen said.

Tiffany’s shares were down 2.3 percent at $83.12 in afternoon trading after touching a low of $81.50. Up to Wednesday’s close, the stock had fallen 20.4 percent this year.

(Editing by Savio D’Souza and Robin Paxton)

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AIG seeking $1.76 billion in ‘life settlements’ trial in New York

NEW YORK An American International Group Inc (AIG.N) unit on Thursday asked a federal judge to order a Pennsylvania firm to pay it $1.76 billion in damages for allegedly overcharging for life insurance policies acquired from elderly individuals.

At the outset of a trial in Manhattan federal court, a lawyer for AIG’s Lavastone Capital accused Coventry First of artificially inflating the price of about 300 such policies, known as “life settlements,” and using a network of subsidiaries to conceal the markups.

“This is a racketeering scheme so audacious it would make the mob blush,” Randy Mastro said in his opening statement.

But Heidi Hubbard, a lawyer for Coventry, said AIG had been aware that Coventry was selling certain policies at a gain and never objected.

“There is no fraud if the people handling this business on a day-to-day basis understand and accept the practice that AIG is now challenging,” she said.

Investors who acquire the policies on the secondary market pay the premiums and then collect the payout when the individuals die.

Coventry, founded by Philadelphia philanthropist Alan Buerger, is the “leader and creator” of the life settlement industry, according to its website.

AIG bought nearly 7,000 life settlements from Coventry with a total face value of $20 billion.

Coventry caused Lavastone to pay more than $150 million in hidden markups and fee overcharges, including broker’s fees it did not incur, Mastro said.

But Hubbard said Coventry had a “reasonable belief” that its agreement with AIG did not preclude it from acquiring some policies and then selling them to AIG at a profit, and that AIG executives understood that.

AIG said it is already entitled to more than $250 million in damages, including interest, based on pretrial rulings from Rakoff that found Coventry liable on certain breach of contract claims.

AIG is also seeking to have Coventry disgorge all of the fees it collected, including legitimate payments for undisputed policies, as well as to impose triple damages under the civil racketeering statute.

AIG stopped acquiring life settlements in 2011, although it continues to hold about 5,000 policies, regulatory filings show.

U.S. District Judge Jed Rakoff is overseeing the trial without a jury.

The case is Lavastone Capital LLC v. Coventry First LLC et al., U.S. District Court for the Southern District of New York, No. 14-7139.

(Reporting by Joseph Ax; Editing by Richard Chang)

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