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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerThe U.S. economy unexpectedly accelerated in Q3 to an annualized growth rate of 3.9% the U.S. Commerce Department announced Wednesday. The report took most economists and Wall Street analysts by surprise: most had expected a 3.1%-3.4% Q3 annualized growth rate.
Further, the Q3 3.9% rate was the fastest growth rate since Q1 2006, when the economy grew at a 4.8% annualized rate. The economy grew at an annualized rate of 3.8% in Q2.
In addition, over the past 12 months the economy has grown at a 2.6% rate - - still below trend, but hardly anemic growth.
Surprising Q3 GDP Stat
"There's no way to slice it, other than to say it's a surprise," economist H. David Wang said in an interview with bloggingstocks.com. "Here the Fed [U.S. Federal Reserve] starts the second day of its interest rate meeting thinking the economy has slowed substantially, then they receive the Q3 data, which says it hasn't."
Wang said it's "quite possible" the Q3 data may have helped convince the Fed to lower key interest rates by only one-quarter percentage point, or by 25 basis points, as opposed to one-half percentage point. Talk in Wall Street and economist circles leading up to the Fed's Wednesday decision had started to point toward a half-point cut by the Fed.
The Fed Wednesday cut the fed funds rate to a quarter point to 4.50% and the discount rate a quarter point to 5.00%.
"The Fed is reviewing a great deal of economic data, in addition to Q3 GDP, but a 3.9% growth stat certainly could refute the arguments of those on the committee who wanted a bigger cut," Wang said. "The Q3 GDP report had strong contributions from consumers, exports, capital spending, military spending and inventory building. Few can say they expected this."
Fed Pause Ahead?
Wang added that he now expects the Fed to pause, and keep short-term interest rates the same, at least temporarily, at its next meeting, in December.
However, Wang said it's too soon to tell if the U.S. economy now has enough economic stimulus in it to resume a +3.0% annual GDP growth rate with adequate job growth and modest inflation.
"We still have a major unknown in the percentage of subprime loans and assets backed by them that are likely to go into default," Wang. "Until we know the answer to that, as well when the housing sector will start to recover, The Fed can not say, 'There's smooth sailing ahead,' regarding the economy. We're growing, but more growth is still needed."
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Reader Comments (Page 1 of 1)
11-01-2007 @ 6:46AM
hal c said...
Are GDP figures adjusted to take population growth and immigration into account? Our percentage of growth may be somewhat constant but surely since the raw numbers of immigrants and births are so much higher couldn't that skew the numbers to indicate a higher percentage of growth than we really have?
11-01-2007 @ 6:52AM
hal c said...
I guess in post #1 the question I'm asking is about the relevence of the GDP number. Maybe it's giving us a false notion of growth? If all our growth is due to the large increase of consumers maybe our 3.9% increase is less impressive? It might be that family consumption is actually declining.
Is this a logical line of reasoning?
11-01-2007 @ 8:29AM
Dwayne said...
I suppose the same data that the government uses to show the huge increase in the GDP is the same data that shows inflation at only 3.9%. Ha Ha! Yesterday one of the reports was showing food at 36% inflationary rates, and what has fuel been running at? The other was the rates on housing which for the last 10 years have been skyrocketing - not on what a house is worth but rather what the idiot will pay. These three the government pulls out of its inflationary figures, and yet those three are what affects the household budget the hardest. I end up cutting everything else out as those three continue to climb.