SEARCH VEGSOURCE:
Custom Search

 


Reply To This Post         Return to Posts Index           VegSource Home


From: Bart (129.171.32.13)
Subject:         US Economy Growth Pace Weakest In Three Years
Date: January 28, 2006 at 9:40 am PST

Growth pace weakest in three years

By Glenn SomervilleFri Jan 27, 5:21 PM ET

The U.S. economy ended 2005 on a surprisingly soft note as consumer spending grew at the slowest rate since 2001 and businesses were less eager to boost investment, a government report on Friday showed.

The Commerce Department said gross domestic product, the broadest measure of economic activity within U.S. borders, expanded at a weak 1.1 percent annual rate in the October-December period -- little more than a quarter of the third quarter's 4.1 percent rate.

It was the weakest growth rate for any three months since 0.2 percent in the fourth quarter of 2002 and much below what Wall Street had anticipated, and initially sent stock futures and the dollar tumbling and bond prices soaring.

But later data showing a pickup in new home sales in December, together with speculation that some of the fourth-quarter slowdown might prove temporary, helped stocks rally strongly as the day wore on.

The Dow Jones industrial average ended up 97.74 points at 10,907.21 while the high tech-laden Nasdaq composite index added 21.23 points to close at 2,304.23. Strong earnings reports by blue-chip companies Microsoft Corp. (Nasdaq:MSFT - news) and Procter & Gamble Co. (NYSE:PG - news) stimulated buying.

Bond prices steadied after early volatile trading. By the end of the day, the 30-year U.S. Treasury bond ahead 5/32 in price to yield 4.696 percent against 4.707 percent on Thursday.

Benchmark 10-year notes , which jumped as much as 10/32 after the GDP report, were 1/32 higher and yielded 4.519 percent, down from 4.525 percent late on Thursday.

There were some signs of increased price pressures in the GDP report. The so-called "core" price index, a favorite of Federal Reserve Chairman Alan Greenspan that strips out volatile food and energy costs, picked up to a 2.2 percent rate of increase from 1.4 percent in the third quarter.

That will be enough to keep the Fed on edge, especially with energy costs heading up.

The GDP report surprised analysts, partly because it implied such widespread softness in key drivers of economic activity. Consumer spending, which fuels two-thirds of the economy, grew at only a 1.1 percent rate, sharply below the third-quarter rate and the weakest since a 1 percent gain in second quarter of 2001.

CAR SALES A FACTOR

Within that category, spending for durable goods like new cars plunged by 17.5 percent -- the steepest since a 23.2 percent fall in the first quarter of 1987. Domestic carmakers General Motors Corp. (NYSE:GM - news) and Ford Motor Co. are closing plants, slashing jobs and are losing market share to foreign rivals.

Businesses raised their investments at a scant 2.8 percent annual rate in the fourth quarter, less than half the third quarter's 8.5 percent and the weakest for any quarter since a 1.1 percent drop in the first quarter of 2003.

A later Commerce Department report showing December new-home sales climbed by 2.9 percent to a 1.269 million unit rate helped perk up financial markets as analysts noted there still was life in the vital housing segment, where rising home prices have helped boost consumers' optimism.

Hurricane Katrina, which ripped through the Gulf Coast region late last summer and left a trail of devastation, was blamed for some of the GDP softness.

"Taking it at face value, the hurricane played a big role in contributing to the weakness," said economist Richard DeKaser of National City Corp. in Cleveland. "Consumer spending was abysmal in October and November."

WARDING OFF GLOOM

On an apparent damage-control mission, Treasury Secretary John Snow visited several television networks after the GDP report was issued to dispute the implication of a weakening economy.

"I would not read too much into today's numbers," Snow said in a statement, adding that "special factors" were at play. "They are not consistent with other data on the U.S. economy which paint a picture of good growth."

The Bush administration has been on a campaign to seek credit for an expanding economy and clearly did not welcome the tepid GDP data.

In 2005, GDP expanded by 3.5 percent, slowing from 4.2 percent growth in 2004.

The Federal Reserve's policy-setting Federal Open Market Committee is set to meet on Tuesday, and has indicated it is closely watching inflation. The Fed has raised short-term interest rates 13 times since mid-2004 and is widely expected to boost them again on Tuesday.

Economist William Sullivan of JVB Financial Group said the soft GDP data might raise speculation the Fed is near an end to its rate-rise cycle.

"These data might introduce a bigger element of doubt as to whether you will get another Fed rate hike in March," Sullivan said. "But right now there's a sense that this is a soft patch and that there is probably a reacceleration under way."

Copyright © 2006 Reuters Limited.

Reply To This Post         Return to Posts Index           VegSource Home


Follow Ups:


    


Post Reply

Name:
E-mail: (optional)
Subject:

Comments:

Optional Link URL:
Link Title:
Optional Image URL:



See spam or
inappropriate posts?
Please let us know.
  


Want to see more videos? Subscribe to VegSource!

Every time we post a new video, we'll send you a notice by e-mail.

No spam ever and you can easily unsubscribe at anytime.

Enter your email address, your first name, and press Submit.


Your Email:
First Name:
Newsletter archive

Infomercial production direct marketing