This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Q1 GDP estimate brings more grim news for savers





If you never get a second chance to make a first impression, then 2014's economy is off to a lousy start.

The Bureau of Economic Analysis (BEA) announced last week that after adjustment for inflation, the U.S. economy grew at an annual rate of just 0.1 percent in the first quarter of 2014. In medical terms, this means the patient is still breathing, but the vital signs are faint.

The bad news

The real GDP growth rate of 0.1 percent reflects a continued deceleration of growth over the past six months. After the economy registered an encouraging 4.1 percent growth rate in the third quarter of last year, it slowed to 2.6 percent in the fourth quarter, and now 0.1 percent.

This latest slowdown is consistent with the start-and-stop recovery since the Great Recession officially ended in mid-2009. Since then, the economy has not been able to string together more than three calendar quarters of growth rates of 2 percent or more before relapsing. Two percent is hardly a robust growth rate, but even that has proven too high a hurdle for this economy to clear consistently.

Don't just blame the weather

It is tempting to blame the weather, but this explanation does not quite cut it. It is true that the winter of 2014 was particularly harsh, and probably did have a dampening effect on economic activity. However, one item in the GDP report stands out ominously, both because it does not have anything to do with weather in the U.S. and because of its significance for future growth prospects.

According to the BEA, real exports of goods and services declined by 7.6 percent in the first quarter -- something that cannot be attributed to flooding in Colorado or snow in Boston. The optimistic scenario for a sustainable recovery was that large developing economies like those of China and Russia were supposed to be the next big engines of global growth. Now, China is fighting its own signs of economic slowdown, and Russia is barely speaking with the U.S. These are problems that will not suddenly improve as the weather gets better.

Impact on interest rates

All-in-all, this signals a likely continuation of low bank rates and high unemployment. While ordinary savers are hurt by the downward pressure on today's savings account rates, Wall Street generally cheers the Federal Reserve's low-interest-rate policies, which this latest evidence of slow growth will encourage. Ultimately though, the country will prosper from growth -- not low interest rates.

Perhaps the most optimistic thing that can be said about today's GDP report is that this is just the first of three official estimates the BEA will make for first-quarter GDP growth. While the first estimates tend to be understated by an average of 0.3 percent, there are also times when these estimates are overstated and subsequent estimates are lower.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,039.49 +60.36 0.36%
S&P 500 1,992.37 +5.86 0.30%
NASDAQ 4,532.1040 +5.6220 0.12%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs