INSTANT VIEW: US GDP shrinks less; private employment falls

NEW YORK (Reuters) - The U.S. economy contracted at slower pace than previously thought in the second quarter as improved consumer and business spending cushioned the impact of a record decline in inventories, according to a government report on Wednesday.

U.S. private employers cut a larger than expected 254,000 jobs in September, less than a revised 277,000 jobs lost in August, a report by a private employment service said on Wednesday.

KEY POINTS:

GDP * The Commerce Department's final estimate showed gross domestic product fell at a 0.7 percent annual rate instead of the 1.0 percent decline reported last month. * Analysts polled by Reuters had forecast GDP, which measures total goods and services output within U.S. borders, slipping at a 1.2 percent rate in the second quarter after dropping 6.4 percent in the January-March period.

ADP * The August decline was originally reported at 298,000. * The median of estimates from 27 economists surveyed by Reuters for the ADP Employer Services report, jointly developed with Macroeconomic Advisers LLC, was for 210,000 private-sector jobs lost in September.

COMMENTS:

GDP:

NIGEL GAULT, CHIEF U.S. ECONOMIST, IHS GLOBAL INSIGHT,

LEXINGTON, MASSACHUSETTS:

"I'm not sure it makes a big difference for growth expectations for the third quarter... It will encourage people of course, that final sales were a little bit. That's helpful.

"The biggest shift I can see here is that business equipment spending did substantially better, but it's still falling. The main reason there is they seem to have revised software spending quite a lot. So that's good news for the tech side.

"But I don't think that this is going to make a lot of change to people's view in the third quarter, we were looking for 3 1/2 percent to 4 percent growth before in the third quarter, and I think we will still be around that mark."

CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK:

"It's quite a bit better-than-expected. Consumption is a little less weak. Fixed investments are quite a bit better. Exports and imports are a little stronger.

"There are small revisions across the board. This should not affect the Q3 GDP number very much. There are still a big decline in inventories plus a lot of government stimulus in the third quarter. They are not going to change after these revisions."

ROBERT MACINTOSH, CHIEF ECONOMIST, EATON VANCE CORP.,

BOSTON:

"(ADP) is a little worse than expected, that maybe offsets the minor, minor positive from the GDP report. So that nets things out a little bit.

"Really what it comes down to is how much of this recovery is going to be sustainable. At this point I'm questioning whether businesses really want to commit to ramping up production. If they're not willing to ramp up production, you're not going to get jobs out of it and that's going to curb consumption. That's the real Holy Grail here, getting consumption up.

"I'm not a believer yet that this is a robust economy. I'm still thinking more in the Nike swoosh type of economy. What I'm seeing here, these numbers this morning, doesn't change my opinion that this is going to be a very frustratingly weak growth period and you're not going to see the job creation that you'd love to see.

STEVEN WOOD, CHIEF ECONOMIST, INSIGHT ECONOMICS, DANVILLE,

CALIFORNIA:

"Economic activity was slightly less weak than estimated a month ago and the composition of output suggests that the recent declines in economic activity are nearing an end. These data are ancient history, as Q3 ends tomorrow. The data released so far for July, August, and early September suggest that Q3 economic activity will expand moderately. Indeed, substantially less inventory liquidation alone is likely to push Q3 GDP into solid growth territory; our early forecast is for a gain of 4.0 percent."

DAVID ADER, HEAD OF GOVERNMENT BOND STRATEGY, CRT CAPITAL

GROUP, STAMFORD, CONNECTICUT:

"The bottom line on this revision is that the changes were marginal and should not impact third quarter prognostications. The market is off a bit -- not sure if it's due to GDP -- post the release. Again, our take is it's a market neutral event."

JACK SPITZ, MANAGING DIRECTOR OF FOREIGN EXCHANGE, NATIONAL

BANK OF CANADA, TORONTO:

"Improvement from the previous month, still negative growth but the trend seems to be indicating there's growth forthcoming at some point in time.

"It speaks to the limited but improving landscape economically in the States. The trend does looks encouraging and it does speak to the possibility of growth in the third quarter of the year.

"What that does to the dollar remains to be seen because what we've seen... is that improvements in the overall economic cycle have resulted in U.S. dollar weakness. It attracts risk buying and risk related buying of commodities and equities and the simultaneous selling of the U.S. dollar.

"We're not seeing a huge reaction from the U.S. dollar perspective, in some respects the U.S. dollar is coming back because equities are failing to hold gains."

PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:

"It's a healthy revision because it reflects less weak domestic demand. That's been a feature of the two revisions from the first round of Q2 GDP numbers. Some of it is due to government spending but there's also a little less weakness in consumer spending. It's not an earth-shaking revision, but it does show a healthier picture than before because domestic spending is less weak. It's unlikely to change perceptions about the third-quarter outlook.

"The ADP report didn't give a clear message. The ADP numbers are broadly in line with the trend in actual U.S. payroll numbers but the pulsations can be different in a critical way month to month and right now the issue is whether the decline in actual payroll employment will continue to slow progressively. But this report doesn't tell us whether the job losses will slow or accelerate. That's a critical difference.

KURT KARL, HEAD OF ECONOMIC RESEARCH, SWISS RE, NEW YORK:

"Basically there was not a lot of change. The economy shrank but it is the second quarter we are talking about. With the huge inventory drawdown we are set for pretty good growth in the current quarter."

RICK MECKLER, PRESIDENT, LIBERTYVIEW CAPITAL MANAGEMENT, NEW

YORK:

"It continues to show that while there isn't a tremendous rush back, there is a small climb back in the markets. I think the hard part for investors is determining whether the recovery is strong enough to justify current stock prices, and whether the rally can continue. We're still in a period where we're looking at less worse numbers.

"The number was about what I was expecting. It was in line given the broad recovery in the market. I think that if the markets hadn't recovered, it would seem a lot better than expected."

ADP:

PAUL DALES, U.S. ECONOMIST, CAPITAL ECONOMICS, TORONTO:

"It doesn't look too encouraging, but I think the important thing to keep in mind that the ADP number has been overly pessimistic in recent months. I wouldn't put too much weight on it. I would look at a broader range of labor indicators like jobless claims and the help wanted index."

STEVE GOLDMAN, MARKET STRATEGIST, WEEDEN & CO, GREENWICH,

CONNECTICUT:

"It was weaker than expected, but overall it hasn't done too much in terms of pulling back the S&P. We're still emerging out of this recession, and people are looking to see what type of rebound we see from here. This number doesn't sway the idea that we emerged from the recession in the middle of the summer. Since growth historically comes six to nine months after the recession ends, I think we may see growth come at the end of the first quarter of next year."

KEVIN CARON, MARKET STRATEGIST, STIFEL, NICOLAUS & CO, FLORHAM

PARK, NEW JERSEY:

"It's weaker than expectation but it's in a range where people don't have to panic about Friday's numbers. On month, the numbers are better which shows that we are heading toward the right direction, just not the V-shape recovery that people are anticipating. With the stock market up 50 percent from its lows, the economy needs to demonstrate V-shape for expectations to be met and the market to move higher, or some really off number to pull the market down."

JOHN SPINELLO, CHIEF TREASURY STRATEGIST, JEFFERIES & CO., NEW

YORK:

"We have a knee-jerk positive reaction to ADP. The market is taking it as if the non-farm payrolls number would have come in higher-than-expected. The market is taking it as a positive. We had a decent sell-off overnight."

DAN GREENHAUS, ANALYST, MILLER TABAK & CO, NEW YORK:

"It's obviously a little worse than expected, but the broader theme is that the labor market is getting less worse. It's very difficult to draw any conclusions for Friday's number because of this. Given the uncertainty surrounding job creation, there's only so much we can read into it, but in any event, 254,000 private sector jobs lost in a month remains a very poor reading."

MARKET REACTION: STOCKS: U.S. stock index futures pare gains BONDS: U.S. Treasury debt prices pare losses DOLLAR: U.S. dollar extends losses versus yen