GDP report shows slowdown in economic growth
Economic reports from the fourth quarter are showing a slowdown. The Gross Domestic Product (GDP) came in below the projection of a 1.1% growth rate. According to the Department of Commerce, the GDP growth rate was a slow 0.6%.
The growth rate earlier in the year, for the third quarter, showed growth at a rate of 4.9%. The report from the fourth quarter showed a surprisingly more dramatic slow down than expected. Business investments were also slowed for the fourth quarter, as well as consumer spending (as we know). Housing investments are continuing to plummet at a quick pace.
The overall growth in the GDP for last year was a weak 2.2%. The 2006 report showed growth slightly higher at 2.9%. The rate of growth will probably not increase much if at all for 2008, or at least for the first two quarters. Since the GDP growth is still in the positive, we are not calling it a recession just yet. The danger is however that that rate of growth is way too close to a negative reading, and that means we are closer to recession than we have been for several years.
Many economists suspect that this report will prompt another rate cut of about 50-basis-points at today’s Federal Open Market Committee meeting. Investors are also looking for the Fed to announce rate reductions today. In light of the weak GDP for the fourth quarter, expectations are for at least the 50-basis-point reduction of the overnight rate.
There is a bit of a chance that the Fed might raise rates to stave off some inflation problems. The consumer price index is up to 2.7%, which is .7% higher than the CPI target. Over the course of last year, prices for goods and services have risen by 3.4%. Rates have to increase to help the inflation problem, but GDP growth is at such a problematic low that the Fed might choose to drop rates yet again to attempt a jolt in overall economic growth.
Fed Chairman Ben Bernanke made it clear is his speech and testimony earlier this month that the FOMC with make the necessary moves to fight against growth slowdown. We will see later today what that means.
