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Economy Grew at Rate of 0.6% Last Quarter

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  • Economy Grew at Rate of 0.6% Last Quarter

    Economy sputters with 0.6 percent growth

    By JEANNINE AVERSA, AP Economics Writer 1 hour, 22 minutes ago

    WASHINGTON - The economy nearly sputtered out at the end of the year and is probably faring even worse now amid continuing housing, credit and financial crises.

    The Commerce Department reported Thursday that gross domestic product increased at a feeble 0.6 percent annual rate in the October-to-December quarter. The reading — unchanged from a previous estimate a month ago — provided stark evidence of just how much the economy has weakened. In the prior quarter, the economy clocked in at a sizzling 4.9 percent growth rate.

    The gross domestic product (GDP) measures the value of all goods and services produced in the United States and is the best barometer of the country's economic health.

    Many economists say they believe growth in the current January-to-March quarter will be even weaker than the 0.6 percent figure of the previous quarter. A growing number also say the economy may actually be shrinking now. Under one rough rule, the economy needs to contract for six straight months to be considered in a recession. The government will release its estimate for first-quarter GDP in late April.

    In another report, fewer people signed up for unemployment benefits last week, although that didn't change the broader picture of a deteriorating jobs market. The Labor Department said jobless claims fell by 9,000 to 366,000, a better showing than many economists were forecasting. Still, unemployment is expected to rise this year given all the problems clobbering the economy.

    The newly released fourth-quarter GDP figure matched analysts' expectations.

    Thursday's report underscored the damage to the economy from the collapse in the housing market, which has dragged down housing prices, pushed home foreclosures up to record highs and has led to a glut of unsold homes.

    Against that backdrop, builders slashed spending on housing projects by a whopping 25.2 percent on an annualized basis in the fourth quarter, the biggest cut in 26 years.

    To limit the damage from the crises, the Federal Reserve has taken a number of extraordinary actions. It has slashed a key interest rate over the last two months by the most in a quarter century. And to relieve turmoil on Wall Street, which intensified after the crash of the country's fifth-largest investment firm, Bear Stearns, the Fed has resorted to its greatest expansion of lending authority since the 1930s. Big securities firms will temporarily be allowed to go to the Fed directly for loans — a privilege that had been afforded only to commercial banks.

    Consumers, whose spending is indispensable to the economy's vitality, boosted buying at a 2.3 percent pace in the fourth quarter. That was better than the 1.9 percent growth rate previously estimated but still marked a slowing from the third quarter's 2.8 percent pace.

    Businesses — nervous about customers' waning appetite to buy given all the problems in the economy — cut back sharply on their inventories of unsold goods. That shaved 1.79 percentage points off fourth-quarter GDP, the most in more than two years.

    Spending by businesses on equipment and software, meanwhile, rose at a pace of 3.1 percent in the final quarter of last year. That was slightly less than previously estimated and marked a slowdown from the prior quarter's 6.2 percent growth rate.

    Businesses profits also took a hit in the final quarter. A measure linked to the GDP report showed that after-tax profits fell 3.3 percent at the end of last year, after being flat in the prior quarter.

    There was a bright spot in the mostly gloomy report, however. Sales of U.S. goods and services to other countries grew at a 6.5 percent pace. That was better than the 4.8 percent growth rate previously estimated, although it was down sharply from the prior quarter's blistering 19.1 percent growth rate.

    U.S. exports have been helped by the sinking value of the U.S. dollar, which makes U.S. goods less expensive to foreign buyers. The U.S. dollar recently plunged to record lows against the euro and has fallen sharply against the Japanese yen.

    The drooping dollar can aggravate inflation pressures.

    An inflation measure linked to the GDP report showed that overall prices increased at a rate of 3.9 percent in the fourth quarter. That was not as high as previously estimated but marked a big pickup from the third quarter's 1.8 percent pace.

    Another gauge showed that "core" prices — excluding food and energy — grew at a rate of 2.5 percent at the end of last year. That was down from a previous estimate of a 2.7 percent pace but was up from the prior quarter's 2 percent growth rate.

    The new core inflation figure is above the Fed's comfort zone — the upper bound of which is a 2 percent inflation rate.

    Although the Fed's No. 1 job is trying to save the economy from a deep and prolonged recession, it is also keeping close tabs on inflation and soaring energy prices.

    Oil prices are topping $105 a barrel. Gasoline prices have marched higher, too. High energy prices can spread inflation if lots of companies boost prices charged to customers for a wide range of goods and services. High energy prices also can be a drag on overall economic growth by crimping consumer spending.

    The combination of slowing economic growth and rising inflation make the Fed's job more difficult. It also has raised fears the country may be headed for a bout of stagflation, a scenario the U.S. hasn't experienced since the 1970s. Fed Chairman Ben Bernanke, however, has said that's not the case.
    Yeah, good try Ben.



    Moon

  • #2
    Does Bush still believe that the economy is "strong"?

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    • #3
      What, you don't like growth?

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      • #4
        Don't worry..
        a $600 check will make the fact all of the problems go away..

        Don't worry about the fact that we have all lost 20 grand in equity in our homes...

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        • #5
          Phwew! Recession averted!

          USA! USA! USA!
          25MM jobs in 10 years / 4% GDP Growth / Insurance for everybody / Schools flush with cash don't produce results
          Jan 2017: 4.7% U-3, 9.2% U-6, 62.7% LFPR, 5.2% Real Wages, 2.6% GDP, 19,827 DJIA, 2,271 S&P500, $2.316/gal

          Comment


          • #6
            Originally posted by mcdao View Post
            Don't worry..
            a $600 check will make the fact all of the problems go away..

            Don't worry about the fact that we have all lost 20 grand in equity in our homes...
            It was fake equity in the first place. Everyone knew there was a housing bubble it was just a matter of when the bottom would fall out.

            But, the $600 checks remain a stupid idea and I don't see how extending unemployment helps spur the economy. It might help China's economy though.

            Now ...getting out of Iraq and stopping the deficit spending. That might do some good.

            But, its going to take some time to dig out the sub prime, credit crunch, housing depreciation mess.

            Oddly, my business is wrapping up the best 3 months we have ever had.
            Go Cards ...12 in 13.


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            • #7
              Economy grows by only 0.6 percent in 1st quarter of 2008

              By JEANNINE AVERSA, AP Economics Writer 23 minutes ago

              WASHINGTON - The bruised economy limped through the first quarter of this year at only a 0.6 percent growth rate as housing and credit problems forced people and businesses alike to hunker down.

              The country's economic growth during January through March was the same as in the final three months of last year, the Commerce Department reported Wednesday. The statistic did not meet what economists consider the classic definition of a recession, which is a retraction of the economy. This means that although economy is stuck in a rut, it is still managing to keep growing — however modestly.

              Many analysts were predicting that the gross domestic product (GDP) would weaken a bit more — to a pace of just 0.5 percent — in the first quarter. Earlier this year, some economists thought the economy would actually lurch into reverse during the opening quarter. Now, they say they believe that will likely happen during the current April-to-June period.

              Gross domestic product measures the value of all goods and services produced within the United States and is the best measure of the country's economic health. Voters are keenly worried about the country's economic problems and so are politicians — in Congress, in the White House and on the campaign trail.

              The housing situation turned more bleak in the first quarter, as record-high foreclosures dumped more unsold homes on the market, adding to builders' headaches. Builders slashed spending on housing projects by a whopping 26.7 percent, on an annualized basis, the most in 27 years. That was the big drag on the economy.

              Consumers — whose spending is vital to the country's economic health — turned much more cautious, also restraining overall economic growth in the first quarter. Their spending rose at just a 1 percent pace. That was down from a 2.3 percent growth rate and was the slowest since the second quarter of 2001, when the United States was suffering through its last recession.

              Soaring energy and food prices are walloping people's pocketbooks, leaving them with less to spend on other things. The credit crunch also has made it harder for people to finance big ticket items, such as cars and homes. And, many homeowners — watching their homes — often their single-biggest asset — slump in value, also are feeling less wealthy and less inclined to spend.

              Businesses, meanwhile, cut back spending on equipment and software at a 0.7 percent pace, the most since the final quarter of 2006. And, they trimmed spending on commercial construction at a 6.2 percent pace, the most since the third quarter of 2005.

              However, businesses boosted their investment in building up stocks of supplies in the first quarter, a big force adding to GDP. Exports of U.S. goods and services also helped first-quarter growth. U.S. exports are being helped by the falling value of the U.S. dollar, which makes U.S. made goods and services less expensive to foreign buyers.

              Spending by the government was another factor helping out GDP in the first quarter. That spending rose at a 2 percent pace for the second quarter in a row.
              Deja Vu all over again.

              Moon

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              • #8

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                • #9
                  My boss told me yesterday that cost of living raise for this year is 2.3% according to the govt. so we won't get any more than that. That's nuts, I heard on CBS that gas is 70% higher, food is 40% higher...oh yeah and if you own a home, it's gone down in value by 11.5%. 2.3% my butt!

                  That was my rant for the day....I feel better now

                  Comment


                  • #10
                    Originally posted by AWSmith98 View Post
                    My boss told me yesterday that cost of living raise for this year is 2.3% according to the govt. so we won't get any more than that. That's nuts, I heard on CBS that gas is 70% higher, food is 40% higher...oh yeah and if you own a home, it's gone down in value by 11.5%. 2.3% my butt!

                    That was my rant for the day....I feel better now
                    You act as if you were receiving a COL increase when the economy was good!

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                    • #11
                      Originally posted by Iowa_Card View Post
                      You act as if you were receiving a COL increase when the economy was good!
                      I got a 10% raise last year.....

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                      • #12
                        However, businesses boosted their investment in building up stocks of supplies in the first quarter, a big force adding to GDP
                        Here is what will get lost in the translation. Yes, the economy grew at 0.60%, except growth would have been negative if inventories wouldn't have grown unnecissarily.

                        Also Non-Residential investment (equipment, software, non-residential structures) has just turned down the other side of a peak. That's not a good sign at all.

                        The fed is predicted to lower rates another 0.25%... that won't help inflation.

                        We're definitely not out of the woods yet.
                        25MM jobs in 10 years / 4% GDP Growth / Insurance for everybody / Schools flush with cash don't produce results
                        Jan 2017: 4.7% U-3, 9.2% U-6, 62.7% LFPR, 5.2% Real Wages, 2.6% GDP, 19,827 DJIA, 2,271 S&P500, $2.316/gal

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                        • #13
                          Originally posted by AWSmith98 View Post
                          I got a 10% raise last year.....
                          I'm certaily jealous. My company will find any and all reason to not give you a decent raise.

                          And by decent I mean > 3 %.

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                          • #14
                            Originally posted by marco View Post
                            Here is what will get lost in the translation. Yes, the economy grew at 0.60%, except growth would have been negative if inventories wouldn't have grown unnecissarily.

                            Also Non-Residential investment (equipment, software, non-residential structures) has just turned down the other side of a peak. That's not a good sign at all.

                            The fed is predicted to lower rates another 0.25%... that won't help inflation.

                            We're definitely not out of the woods yet.
                            The largest home builder in Iowa just laid off 100 employees because Wells Fargo declined to renew some type of financing deal with them. Of course, the Execs are still getting a salary.

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                            • #15
                              Originally posted by Iowa_Card View Post
                              The largest home builder in Iowa just laid off 100 employees because Wells Fargo declined to renew some type of financing deal with them. Of course, the Execs are still getting a salary.
                              Yeah, housing is getting beat up the whole way, from begining to end. There are major inventory issues there, and with more and more empty foreclosured properties becoming available, that probably isn't going to change anytime soon.

                              Consumers have switched to inferior goods since household budgets are tight and credit is unavailable. Businesses in turn tighten up as revenues dry up. One of the things they do is cut new investment and make their current equipment, processes and structures last instead of upgrading.
                              25MM jobs in 10 years / 4% GDP Growth / Insurance for everybody / Schools flush with cash don't produce results
                              Jan 2017: 4.7% U-3, 9.2% U-6, 62.7% LFPR, 5.2% Real Wages, 2.6% GDP, 19,827 DJIA, 2,271 S&P500, $2.316/gal

                              Comment

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