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GDP — What you need to know in markets on Friday

Myles Udland
Markets Reporter

To cap off the busiest week of earnings season, the U.S. economy will be in focus as the first reading on economic growth in the second quarter is set for release in the morning.

Economists expect the economy expanded at an annualized rate of 2.7% in the second three months of the year, which would be a bounce-back after the economy grew just 1.4% to start the year.

This report will also mark the first full three-month period during which Donald Trump was the sitting president.

“The Q2 GDP report will provide an important benchmark for policymakers’ and market participants’ intermediate-term forecasts,” writes Deutsche Bank economist Brett Ryan. “We continue to expect a meaningful rebound in growth, mainly due to a recovery in consumer spending.”

Also out Friday morning will be the final report on consumer sentiment in July from the University of Michigan, as well as the employment cost index (ECI) for the second quarter. The ECI is seen as a more comprehensive measure of wage growth as it captures not only salary paid to employees but benefits as well. The ECI is expected to rise 0.6% in the second quarter.

Ryan and his team at Deutsche Bank expect this measure to rise 0.7% in the second quarter, which would bring the index’s annual growth rate to 2.5%, another sign that wage pressures, while not accelerating rapidly, are building in the U.S. economy.

“In summary, this morning’s data should dispel any lingering concerns that economic momentum may have downshifted and should add to the Fed’s confidence in their intermediate-term inflation forecasts,” Ryan writes.

 

Also on the calendar Friday morning will be, of course, a rash of earnings reports, with highlights expected to include ExxonMobil (XOM), American Airlines (AAL), Merck (MRK), Goodyear Tire (GT), Chevron (CVX).

Investors will also keep an eye on the broader market, which saw a midday sell-off in tech stocks despite strong results from Facebook (FB) on Wednesday night that pushed the social media giant to a new record high.

After the market close on Thursday, Amazon (AMZN) reported a mixed quarter with earnings missing expectations while revenue topped estimates. In after hours trade, shares of the company were down about 3%.

Myles Udland is a writer at Yahoo Finance. Follow him on Twitter @MylesUdland

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