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Friday, August 28, 2009

Second Half Growth: Coming on Strong

Back in mid-July, Intel gave us the first glimpses of a stronger than expected Q3. They made it clear then that Q3 growth would be anything but lackluster. On Friday they underscored that assertion by further raising their Q3 outlook. Now it's likely that their strong growth will extend into Q4.

Intel also surprised in the second quarter when its sales and profit easily beat Wall Street's expectations. Not only did Intel raise sales estimates on Friday, but also signaled better profit expectations by announcing a better gross margin forecast for the quarter.

In addition to the good news wrap from Intel on Friday, this week was full of positive indications of a better than expected rest of the year...

1. Most economists forecast the government to downgrade their GDP estimates for the second quarter to -1.5%. Instead the government's revised reading on gross domestic product was unchanged from a previous estimate at -1.0% for Q2.

2. Computer maker Dell reported earnings that easily beat analysts' estimates on Thursday. Like Intel, Dell also expects stronger sales in the second half of the year. Dell hasn't had much good news to report in the last year and many analysts use Dell results as a barometer for corporate spending in the coming months.

3. Also on Thursday, the government reported that initial and continuing claims for unemployment continued to fall. Earlier in the week the Conference Board reported that its Consumer Confidence Index skyrocketed to 54.1 in August from an upwardly-revised 47.4 in July.

4. And news on the home front was also extremely positive. In a joint report issued by the Census Bureau and Department of Housing and Urban Development, new homes sold at an annualized rate of 433,000 during July. That was up almost 10% from the rate in June and the highest rate since last September. The report comes right on the heels of earlier home market positives including spikes in existing home sales, home prices and housing purchase affordability.

5. But what is likely the best evidence of significant second half growth was a durable goods order surge in July. Those orders rose 4.9%, the largest increase in two years. Civilian aircraft orders jumped, while the reopening of Chrysler and General Motors assembly plants reflects a welcome increase in orders for motor vehicles.

Earlier in the month we warned to not be surprised by a strong Q3. It now appears that Q4 will be quite strong as well.

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