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Mix-Ansicht- Still on recovery path, but new questions - Cosa, 13.05.2002, 10:54
Still on recovery path, but new questions
<font size="4">Still on recovery path, but new questions.</font>
By Scott Brown from Raymond James & Associates Inc 05-13-2002
~ Consumer spending growth appears likely to slow in response to more muted gains in wages and salaries. Capital spending growth is expected to be positive, but relatively soft in the near term.
~ Federal Reserve policy is on hold until the recovery shows signs of strengthening and deepening.
~ The rapid deterioration in the federal budget outlook puts strain on the dollar and threatens to crowd out private investment in the near term.
Real Gross Domestic Product, the government’s aggregate measure of economic activity, rose at a 5.8% annual rate in the first quarter (according to the advance estimate). Much of that gain was due to a reduced rate of inventory reduction, a process that is still underway. Government spending added 1.4 percentage points to growth. The underlying strength in private-sector demand (GDP less government spending and the change in inventories) was relatively muted. Overall GDP growth is very likely to remain positive in the next few quarters, but the pace of recovery may prove somewhat disappointing.
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Wages and salaries have slowed dramatically over the last year, but special factors provided a temporary boost to spending in the first quarter.
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In the year ending April, the federal government ran about a $104 billion deficit, vs. a $278 billion surplus just 12 months earlier - a 3.7 percentage point shift in national savings (as a percentage of GDP).
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