Slumping into 2006 with Low GDP Growth

Angry Bear’s writer Kash (who has a PhD in macroeconomics) has a post about the unexpectedly poor numbers for Gross Domestic Product growth in the fourth quarter of 2005.

Consumer spending slowed dramatically, to its lowest rate of growth in recent history. Business spending slowed even more dramatically, from a growth rate in the neighborhood of 8-10% over the past 10 quarters to just 3% this quarter – the lowest rate of business spending growth since 2003: Q1.

In fact, the only thing that kept GDP growth positive at all was a massive build-up in inventories – the largest increase in inventories since early 2002. Apparently businesses were caught off guard by the slowdown in demand, and have not yet slowed their production accordingly. Presumably, they will.

With news like this, it begs the question of whether the stock market will hold up, and whether unemployment will rise. Better not buy that big new house yet. In six months there might be some real bargains on the market.

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One response

  1. The continued GDP growth has consistently been the number that has been trumpeted by the “The Economy Is Great” crowd. This group seems to consist of people at Investors Business Daily, BusinessWeek, Morgan Stanley, and the cheerleaders in the bu$h admin. In fact, in a recent BusinessWeek, there was an article how the White House was planning another PR tour to sing the praises of the economy. Their evidence? Continued growth in GDP.

    Unlike Kash, I don’t have a Ph.D. (or any other degree) in Econ. However, keeping in mind that the Great Depression was a Supply Side disaster (too many products, too few people to buy them), my concern is that stagnant or declining wages means that, sooner or later, there aren’t going to be enough people to buy all this stuff. Credit works only for so long. Perhaps since my specialty is history, I’ve been concerned about the developing pattern of more stuff and fewer consumers who can afford to buy it. End result? I’m worried.

    And Angry Bear is, IMHO, one of the best sites on the web. Lots of really perceptive insights, the comments are of consistently high quality, the authors back up their claims with facts, graphs, charts, etc…and it’s all “slightly left of center,” which means the ideology is kept to a minimum, except for a couple of annoying trolls. Fortunately, they’re few and far between, and they get blasted pretty quickly.

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