You Call This a Slowdown?
The first quarter stalled, but the economy is rebounding
See, this is why Main Street wonders if Wall Street is located on another planet. New Commerce Department data show the U.S. gross domestic product grew at a tiny 0.6 percent annual rate in the first three months of this year, less than the 1.3 percent originally estimated. That was the worst performance since early 2003 and made it four straight quarters of wimpy growth. Yet investors seemed to just shrug their shoulders at news the economy almost shifted into reverse. They pushed the Standard & Poor's 500 index further into record territory last week.
Now, Drew Matus, economist at Lehman Brothers in Manhattan, is most definitely located on this Earth. And when he drills down into the numbers, he finds that "the worst part of the growth slowdown is behind us." A big reason for the downward change was that producers—betting wrongly that consumers would shut their wallets—scaled back on inventories, lopping 1 percentage point off GDP.
But with consumers spending at a vigorous 4.4 percent annual rate in the first quarter, shelves are likely to be restocked soon, powering growth in the coming months. That could explain why the often dour Federal Reserve has turned a bit more chipper. Minutes from its May 9 meeting described Fed members as viewing risks to the economy as having "diminished slightly." That's positively giddy in Fedspeak.
Meanwhile, in news everyday workers might take to heart, the economy created 157,000 jobs in May, according to the Labor Department, an average of 160,000 a month for the past year. That kind of economic news will be well received on any planet.
This story appears in the June 11, 2007 print edition of U.S. News & World Report.
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