2/29/2012

Continued weak economic growth and not the best reasons for increasing estimated GDP growth

GDP growth for 2011 was still only about 1.7 percent. But an increase in inventories with such low demand doesn't sound like a good reason for increasing the estimated GDP growth. From the Financial Times:

Ben Bernanke struck a downbeat tone on the health of the US economy . . . the fundamentals supporting consumer spending “continue to be weak”.
Mr Bernanke’s cautious comments came as the Bureau of Economic Analysis revised up its growth estimate for the fourth quarter of 2011 from an annualised rate of 2.8 per cent to 3 per cent. Most of that growth came from an inventory build-up, with growth in final sales to domestic purchasers, a crucial measure of demand in the economy, revised up only from 0.9 per cent to 1.1 per cent.
Mr Bernanke’s comments suggest that the Fed has made no decisions about another round of quantitative easing – sure to be nicknamed QE3. The central bank’s policy will depend on whether or not consumer demand follows the improvement in the labour market. . . .
Mr Bernanke said that the drop in the unemployment rate from 9 per cent last September to 8.3 per cent in January had been “somewhat more rapid than might have been expected”, given that the economy was not growing that fast.
“The fundamentals that support spending continue to be weak: real household income and wealth were flat in 2011, and access to credit remained restricted for many potential borrowers,” said the Fed chairman. “The job market remains far from normal.”

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