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Archive for Friday, January 27, 2012

American economy not healthy yet, but healing

January 27, 2012

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— The American economy may not be truly healthy yet, but it’s healing.

The 2.8 percent annual growth rate reported Friday for the fourth quarter was the fastest since spring 2010 and was the third straight quarter that growth has accelerated.

Experts cautioned, however, that the pace was unlikely to last and that it’s not enough to sharply drive down the unemployment rate.

Unemployment stands at 8.5 percent — its lowest level in nearly three years after a sixth straight month of solid hiring. And Friday’s Commerce Department report suggests more hiring gains ahead.

For the final three months of 2011, Americans spent more on vehicles, and companies restocked their supplies at a robust pace.

Still, overall growth last quarter — and for all of last year — was slowed by the sharpest cuts in annual government spending in four decades. And many people are reluctant to spend more or buy homes, and many employers remain hesitant to hire, even though job growth has strengthened.

The outlook for 2012 is slightly better. The Federal Reserve has estimated economic growth of roughly 2.5 percent for the year, despite abundant risk factors: federal spending cuts, weak pay increases, cautious consumers and the risk of a European recession.

Economists noted that most of the growth in the October-December quarter was due to companies restocking their supplies at the fastest rate in nearly two years. That pace is expected to slow.

“The pickup in growth doesn’t look half as good when you realize that most of it was due to inventory accumulation,” said Paul Ashworth, an economist at Capital Economics.

Ashworth expects annualized growth to slip below 2 percent in the current January-March quarter. Other economists have similar estimates.

Stocks opened lower after the government reported the growth figures. The Dow Jones industrial average closed down about 74 points. Broader indexes were mixed.

In a normal economy, roughly 3 percent growth is a healthy figure. It’s enough to keep unemployment down — but not so much growth as to ignite inflation.

But coming out of a recession, much stronger growth is needed. By some estimates, the economy would have to expand at least 5 percent for a full year to drive down the unemployment rate by 1 percentage point.

In many ways, the economy did end 2011 on a strong note. Companies invested more in equipment and machinery in December.

Comments

cato_the_elder 2 years, 10 months ago

“'The pickup in growth doesn’t look half as good when you realize that most of it was due to inventory accumulation,' said Paul Ashworth, an economist at Capital Economics.

Ashworth expects annualized growth to slip below 2 percent in the current January-March quarter. Other economists have similar estimates.

Stocks opened lower after the government reported the growth figures. The Dow Jones industrial average closed down about 74 points. Broader indexes were mixed.

In a normal economy, roughly 3 percent growth is a healthy figure. It’s enough to keep unemployment down — but not so much growth as to ignite inflation.

But coming out of a recession, much stronger growth is needed. By some estimates, the economy would have to expand at least 5 percent for a full year to drive down the unemployment rate by 1 percentage point."

Leave it to an AP reporter to sugarcoat this and leave the most significant part of the story until the end. If you remove restocking of inventories from yesterday's GDP numbers, the news was mostly bad.

cowboy 2 years, 10 months ago

If you truly measure the economy on what Wall Street says you are remarkably deluded. They make money regardless of the market movement.

Witness all the cockamamie reasons for gas / oil price increases. Seems they (traders) have a schedule set up on who will screw us next.

I can only go on what I see and it is improving.

cato_the_elder 2 years, 10 months ago

What's the effective underemployment rate at present? Do you know?

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