Taking Apart the Tainted GDP Data
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According to the latest gross domestic product data, the U.S. economy expanded faster than expected in the fourth quarter, at a 3.5% pace compared to the forecasts for 3.0%. This gain followed subpar growth in the previous two quarters.
These fourth-quarter data are strong enough to keep the Federal Reserve on the sidelines. Although growth did accelerate, those who are bearish on the economy will seize upon some important factors in the GDP report:
- A decrease in business spending
- Sharp weakness in residential investment
- High government spending
- Lackluster nominal personal spending.
Business SpendingFirst, business spending fell during the quarter, with spending on equipment and software falling at a 1.8% clip. That's the second decline in three quarters and the largest since the fourth quarter of 2002. The weakness is likely a response to the anemic GDP reports of the past two quarters, and businesses were probably concerned about growth prospects in light of the sagging housing sector and high energy costs that existed at that time. Business spending will probably pick up in the first quarter in response to the decline in energy costs and signs of bottoming in home sales.
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