U.S. economy grew below estimates in Q4; Fed may cut rates today, in the future

Posted Jan 30th 2008 9:26AM by Joseph Lazzaro
Filed under: Bad News, Economic Data, Federal Reserve, Recession

U.S. economic growth slowed substantially in Q4 2007. Gross domestic product grew at a 0.6% rate as the housing sector continued to contract, the U.S. Commerce Department announced Wednesday, raising concerns that the U.S. economy will fall into a recession in 2008, if it hasn't entered one already in December 2007.

Further, the Q4 GDP statistic represents the nation's slowest growth since the economy started to recover from the 2002 recession and was also well below the 1.2% consensus estimate. The economy grew at a 4.9% rate in Q3 2007. For 2007, the U.S. economy grew 2.2%, the slowest growth since 2002. GDP increased 2.9% in 2006.

Real personal consumption expenditures increased 2.0% in Q4 2007, compared with a jump of 2.8% in Q3 2007. Durable goods increased 4.2% in the fourth quarter, compared with a rise of 4.5% in the third. Nondurable goods increased 1.9%, compared with an increase of 2.2% the previous quarter. Services expenditures increased 1.6%, compared with an increase of 2.8% in Q3 2007.

'Abysmal' Q4 GDP growth

Economist Steve Affinito told BloggingStocks Wednesday the Q4 2007 GDP statistic means the U.S. Federal Reserve will not only cut key, short-term interest rates by 50 basis points today, the Fed also has to be prepared to cut rates again after today, in his interpretation.

"The Q4 report shows an economy that has slowed to a crawl. Any Fed hawks trying to balance GDP growth concerns against potential inflation pressure will be tipped toward cutting rates after this report. It's an abysmal growth rate," Affinito said. "Housing is in deep recession, and the consumer has pulled back substantially, which points toward a recession up ahead."

In addition, Affinito said many economists will probably revise downward their Q1 2008 GDP projections, although he's holding off with his revision for now. Affinito said he still sees the U.S. economy contracting by 0.9-1.5% in Q1 2008.

Tags: business investment, BusinessInvestment, consumer spending, featured, GDP, housing, interest rates, Q4, U.S. economy, U.S. Federal Reserve