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US Growth Rate Slows

Posted by Steve Markowitz on April 27, 2012

The US government released the Gross Domestic Product (GDP) figures and they were disappointing.  While the GDP increased by 3% during the fourth quarter of 2011, for the first quarter of 2012 that increase dropped to only 2.2%.  According to economists, at 2.2%, the increase is barely enough to maintain the current anemic employment rate.

The government’s figures indicate that consumer spending was relatively strong.  However, this positive news was offset by the fact that consumer savings decreased, which indicates that consumers will have to pull back on spending.

The GDP rate was negatively impacted by the decreases in government spending, mainly due to a drop in military spending.  In addition, business investment decreased, in part due to the end of a capital investment tax break late last year.

After the figures were released, the Dow closed up 20 points.  This even though the news out of Europe is deteriorating with Spain’s debt being downgraded and Britain sinking into a double dip recession.  While the GDP figures in themselves are troubling, the reaction of the equity markets shows a disconnect.  This is indication that equities’ valuations are showing signs of being look a bubble.  This is not surprising given the low interest rate policies of governments worldwide that has cajoled people into making ever riskier investments.

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