Economy Slowed, Not Stalled ; the US Gross Domestic Product Grew Only 2.2 Percent Last Quarter

By Scherer, Ron | The Christian Science Monitor, March 1, 2007 | Go to article overview

Economy Slowed, Not Stalled ; the US Gross Domestic Product Grew Only 2.2 Percent Last Quarter


Scherer, Ron, The Christian Science Monitor


The US economy is entering spring with less wind at its back than it has had for the past four years.Although the slowdown is still not a big concern of most economists, they warn that an economy that is moving more like a tortoise than a hare is at greater risk of being overrun by some outside event - perhaps one that causes a recession or a period of very slow growth.But a sustainable slow- growth economy does have a bright side: Inflationary pressure is likely to ease, keeping the Federal Reserve from raising interest rates for borrowers.One sign of economic slowdown came Wednesday when the government revised downward - from 3.5 percent to 2.2 percent - its estimate for the fourth-quarter gross domestic product (GDP). The new number marks the largest revision in quarterly GDP in at least 15 years. That news followed a tumultuous Tuesday, when the Dow Jones Industrial Average plunged 416.02 points, one of its most volatile moves in years. As of midday Wednesday, the market seemed to have stabilized.Most economic forecasters say the market's acrobatic moves aren't the kind of exogenous event that would trigger a downturn in the economy. Wednesday, Federal Reserve Chairman Ben Bernanke, appearing before Congress, said there is "no material change" in the outlook from the last time he testified two weeks ago. The downward revision in the GDP, he added, was consistent with the central bank's outlook for "moderate growth." If the economy can work through its current problems, especially in the housing market, it could strengthen later this year, said Mr. Bernanke.Wednesday, however, the housing sector received another shot of bad news. Sales of new homes fell 16.6 percent in January over the same time last year, the steepest percentage drop in more than a decade, the US Commerce Department reported. The number of unsold new homes continued to rise, and the median price fell 2.1 percent as developers dropped prices to attract buyers.Durable goods droopHousing is not the only sector that's bogged down. Orders of durable goods fell 7.8 percent in January after rising 3.6 percent in December, the Commerce Department reported Tuesday. Durable goods are big-ticket items such as airplanes and construction equipment."It's a mystery, in a way. The fundamentals should be positive for capital expenditures. It should be booming," says Dan Meckstroth, chief economist for Manufacturers Alliance/MAPI in Arlington. Va. "Corporate profits are at an all-time high. Companies have so much cash they are buying back their shares because they say they can't find a better use of their money in their own business, and factories are running at a relatively high rate."The negative economic reports come on the heels of some recession warnings. Former Fed Chairman Alan Greenspan, speaking Monday in Hong Kong, noted that corporate profit margins were starting to shrink - a possible sign of the end of a business cycle. …

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