The ECRI growth rate indicator continues its downward trend and has broken zero. By this measure (allegedly predictive of real economic growth by 8 months), we'll see an economic downturn around...hmmm...november, which will continue downward for at least 5 months into a recessionary position.
Couple that with the article below. If this indicator is as accurate as it has been historically it might be possible that the fed will have to stop raising rates and may have to cut them to restimulate economic growth, and we may be seeing yet another period of stagnancy or decline in equities.
I've been counting on interest rate increases making cd's and bonds look more attractive, but I'm feeling less certain of that at this point. And I still dont like stock valuations one bit.
I may decide to split my taxable portfolio three ways: max ibond purchases, and split the rest between 5 year cd's and 20 year tips and get used to the idea of making 1% on my money. Or stuff the whole thing into long term california munis and hope inflation stays tame for the next 10 years.
U.S. Economy Slows Dramatically in Spring
By MARTIN CRUTSINGER, AP Economics Writer
WASHINGTON - The U.S. economy grew at an annual rate of just 3 percent in the spring, a dramatic slowdown from the rapid pace of the past year, as consumer spending fell to the weakest rate since the slowdown of 2001, the government reported Friday.
The Commerce Department (news - web sites) said that the gross domestic product, the country's total output of goods and services, slowed sharply in the April-June quarter from a 4.5 percent growth rate in the first three months of the year.
The size of the slowdown caught economists by surprise. Many had been looking for GDP (news - web sites) growth to come in around 3.8 percent in the second quarter. Even that would have been a sharp deceleration for an economy that had been growing at a 5.4 percent annual rate through the year ending in March.
It raised the issue of whether the economy, which Federal Reserve (news - web sites) Chairman Alan Greenspan (news - web sites) said last week had encountered a "soft patch" in June, could be in danger of seeing growth falter even more in coming quarters.
In one piece of good news, inflation pressures eased with a key GDP inflation gauge that excludes energy and food rising at an annual rate of just 1.8 percent in the second quarter, down from a 2.1 percent increase in the first quarter.
President Bush (news - web sites) is counting on strong economic growth to generate sizable gains in employment in coming months to give voters a good feeling about the economy as they go to the polls on Nov. 2.
However, Democratic challenger John Kerry (news - web sites) contends that Bush is pursuing a failed economic policy that has produced the worst jobs record of any president since Herbert Hoover and is subjecting Americans to a "middle class squeeze" of falling wages and rising costs for health care and education.
The 3 percent GDP growth rate in the second quarter was the slowest growth since the economy was expanding at a lackluster 1.9 percent rate in the first quarter of 2003.
Over the next four quarters, the economy tuned in a sizzling performance with GDP growth rates of 4.1 percent in the second quarter of 2003 and 7.4 percent in the third quarter, a pace that was the fastest in 20 years, and 4.2 percent in the fourth quarter and 4.5 percent in the first quarter of this year.
The slowdown in the second quarter stemmed from a sharp slowing in consumer spending which rose at an annual rate of just 1 percent, the smallest increase since a similar 1 percent rise in the second quarter of 2001, when the economy was slumping.
All of the GDP figures from 2001 through 2003 were revised with Friday's release as part of an annual revision to the numbers to reflect new sources data.
Those revisions changed the annual GDP rates only slightly but did alter significantly the quarterly GDP changes. There are no longer three consecutive declining quarters of GDP in 2001 during the period that the National Bureau of Economic Research has formally ruled that the country was in a recession. Instead, the GDP demonstrated a sawtooth pattern of a decline followed by a quarter of growth.
The weak growth in consumer spending reflected a big drop in auto sales and other durable goods which fell at an annual rate of 2.5 percent in the second quarter.
Offsetting the weakness in consumer spending, business investment and residential housing continued to race ahead during the quarter.
But consumer spending is critical, given that it accounts for two-thirds of total economic activity. Many economists believe the slowdown in consumer demand will be temporary. They point to strong job growth in recent months and rising consumer confidence. They believe that will provide support for a rebound in consumer spending in the months ahead.
The Federal Reserve began raising interest rates on June 30 and Greenspan indicated that further rate hikes will likely come at a gradual pace as long as inflation does not threaten to get out of hand. Couple that with this:
