Economic Growth Slows
GDP growth has slowed according to the advanced estimate just released by the BEA.
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.5 percent in the second quarter of 2006, according to advance estimates released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 5.6 percent.
It is only the advanced estimate, and at a later date the numbers will be revised which could move the number higher. Still, for the past 9 quarters GDP growth has been about a percentage point higher.
Update: Looks like Wall Street saw this as good news. Clearly, the thinking is that this slow down in growth might mean that Bernanke and the Fed can slow down the interest rate increases.
Update: This article suggests that firms and consumers are turning more cautious and part of the reason is the $3+/gallon price of gasoline.
But in the second quarter, Americans felt the pinch of $3-a-gallon gasoline prices and higher interest rates.
“This expansion is getting a little frayed around the edges because of consumer exhaustion,” said economist Ken Mayland of ClearView Economics. “Consumers are losing that extra mojo to spend” now that the slowing housing market is making people feel less wealthy, he said.
As to what the Fed might do about inflation there was this,
An inflation gauge closely watched by the Federal Reserve showed that core prices – excluding food and energy – advanced at a 2.9 percent pace in the second quarter – far outside the Fed’s comfort zone. That was up from a 2.1 percent growth rate in the first quarter and marked the highest inflation reading since the third quarter of 1994, when core inflation rose at a 3.2 percent pace.
The inflation reading was taken before the latest run-up in energy prices. Oil prices, which had hit a record high in late April, soared to a new closing high of $77.03 a barrel in the middle of July.
In a separate report mined for inflation clues, the Labor Department said employers’ costs to hire and retain workers climbed 0.9 percent in the second quarter, up from a 0.6 percent advance in the prior quarter.
Given that assessment, Wall Street investors and some economists believe the Fed might take a breather in its two-year-old rate-raising campaign at its next meeting, on Aug. 8.
Some economists, however, continue to predict that rates will be boosted again at the August meeting to ward off rising inflation; after that, they think the Fed may move to the sidelines.
What will happen with regards to interest rates? Anybody’s guess at this point.